10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

OR

[  ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                        to                                       

Commission file number: 0-19825

SCICLONE PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware	94-3116852
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer Identification no.)
901 Mariner’s Island Blvd., Suite 205, San Mateo, California	94404
(Address of principal executive offices)	(Zip code)

(650) 358-3456
(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

          Yes [X]   No [  ]

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

          Yes [X]   No [  ]

          As of June 30, 2004, 44,625,754 shares of the registrant’s Common Stock, $0.001 par value, were issued and outstanding.

SCICLONE PHARMACEUTICALS, INC.

INDEX

		PAGE NO.
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003		3
	Condensed Consolidated Statements of Operations for the Three-month and Six-month periods ended June 30, 2004 and 2003		4
	Condensed Consolidated Statements of Cash Flows for the Six-month periods ended June 30, 2004 and 2003		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26
Item 4.	Controls and Procedures		26
PART II.	OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders		27
Item 6.	Exhibits and Reports on Form 8-K		28
Signatures			30
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

2

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2004			2003
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	44,818,000		$	52,899,000
Restricted short-term investments		694,000			695,000
Other short-term investments		9,458,000			9,381,000
Accounts receivable, net of allowance of $638,000 in 2004 and 2003		11,510,000			10,142,000
Inventories		5,115,000			5,778,000
Prepaid expenses and other current assets		1,343,000			2,456,000
Total current assets		72,938,000			81,351,000
Property and equipment, net		322,000			325,000
Intangible assets, net		577,000			612,000
Other assets		1,542,000			1,534,000
Total assets	$	75,379,000		$	83,822,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,430,000		$	3,423,000
Accrued compensation and employee benefits		1,033,000			1,440,000
Accrued clinical trials expense		1,018,000			1,889,000
Accrued professional fees		423,000			481,000
Deferred revenue		537,000			537,000
Other accrued expenses		612,000			631,000
Total current liabilities		6,053,000			8,401,000
Deferred revenue		403,000			671,000
Other long-term liabilities		900,000			900,000
Convertible notes payable		5,600,000			5,600,000
Commitments and contingencies
Stockholders’ equity:
Preferred stock; $0.001 par value; 10,000,000 shares authorized; no shares outstanding in 2004 and 2003, respectively		—			—
Common stock; $0.001 par value; 75,000,000 shares authorized; 44,625,754 and 44,484,144 shares issued and outstanding in 2004 and 2003, respectively		45,000			44,000
Additional paid-in capital		206,479,000			206,320,000
Accumulated other comprehensive income		199,000			176,000
Accumulated deficit		(144,300,000	)		(138,290,000	)
Total stockholders’ equity		62,423,000			68,250,000
Total liabilities and stockholders’ equity	$	75,379,000		$	83,822,000

See notes to condensed consolidated financial statements

3

SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three months ended						Six months ended
	June 30,						June 30,
	2004			2003			2004			2003
Product sales	$	5,613,000		$	16,207,000		$	11,027,000		$	21,207,000
Contract revenue		1,135,000			224,000			1,363,000			448,000
Total revenue		6,748,000			16,431,000			12,390,000			21,655,000
Cost of product sales		1,178,000			2,931,000			2,320,000			3,947,000
Gross margin		5,570,000			13,500,000			10,070,000			17,708,000
Operating expenses:
Research and development		5,145,000			4,308,000			9,076,000			8,091,000
Sales and marketing		2,148,000			3,025,000			4,591,000			5,254,000
General and administrative		1,156,000			1,035,000			2,449,000			2,047,000
Total operating expenses		8,449,000			8,368,000			16,116,000			15,392,000
Income (loss) from operations		(2,879,000	)		5,132,000			(6,046,000	)		2,316,000
Interest and investment income		112,000			43,000			228,000			96,000
Interest and investment expense		(91,000	)		(90,000	)		(181,000	)		(181,000	)
Other income (expense), net		(19,000	)		39,000			(11,000	)		31,000
Net income (loss)	$	(2,877,000	)	$	5,124,000		$	(6,010,000	)	$	2,262,000
Earnings (loss) per share:
Basic net income (loss) per share	$	(0.06	)	$	0.14		$	(0.13	)	$	0.06
Diluted net income (loss) per share	$	(0.06	)	$	0.13		$	(0.13	)	$	0.06
Weighted average shares used in computing:
Basic net income (loss) per share		44,612,260			37,672,876			44,590,674			37,497,477
Diluted net income (loss) per share		44,612,260			40,490,411			44,590,674			39,338,964

See notes to condensed consolidated financial statements

4

SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Six months ended
	June 30,
	2004			2003
Operating activities:
Net (loss) income	$	(6,010,000	)	$	2,262,000
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		99,000			90,000
Changes in operating assets and liabilities:
Accounts receivable		(1,368,000	)		(2,647,000	)
Inventories		663,000			495,000
Prepaid expenses and other current assets		1,093,000			(59,000	)
Accounts payable and other accrued expenses		(1,011,000	)		1,027,000
Accrued compensation and employee benefits		(408,000	)		(250,000	)
Accrued clinical trials expense		(871,000	)		(226,000	)
Accrued professional fees		(57,000	)		(132,000	)
Deferred revenue		(269,000	)		(448,000	)
Net cash (used in) provided by operating activities		(8,139,000	)		112,000
Investing activities:
Purchase of property and equipment		(49,000	)		(20,000	)
Payment on purchase of marketable securities		(53,000	)		(4,000	)
Net cash used in investing activities		(102,000	)		(24,000	)
Financing activities:
Proceeds from issuances of common stock, net of financing costs		160,000			5,042,000
Net cash provided by financing activities		160,000			5,042,000
Net (decrease) increase in cash and cash equivalents		(8,081,000	)		5,130,000
Cash and cash equivalents, beginning of period		52,899,000			20,233,000
Cash and cash equivalents, end of period	$	44,818,000		$	25,363,000

See notes to condensed consolidated financial statements

5

SCICLONE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1.	Basis of Presentation
	SciClone was reincorporated in the State of Delaware on July 18, 2003. The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles consistent with those applied in, and should be read in conjunction with, the audited financial statements for the year ended December 31, 2003 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission. The interim financial information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. The condensed consolidated balance sheet data at December 31, 2003 is derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
2.	Significant Accounting Policies
	Revenue Recognition
	The Company recognizes revenue from product sales at the time of shipment. There are no significant customer acceptance requirements or post shipment obligations on the part of the Company. Sales to importing agents or distributors are recognized at time of shipment when title to the product is transferred to them, and they do not have contractual rights of return except under limited terms regarding product quality. However, the Company will replace products that have expired or are deemed to be damaged or defective when delivered. Payments by the importing agents and distributors are not contingent upon sale to the end user by the importing agents or distributors.
	Contract revenue for research and development is recorded as earned based on the performance requirements of the contract. Nonrefundable contract fees for which no further performance obligations exist, and there is no continuing involvement by the Company, are recognized on the earlier of when the payments are received or when collection is assured.
	Revenue associated with substantive performance milestones is recognized based on the achievement of the milestones, as defined in the respective agreements and provided that (i) the milestone event is substantive and its achievement is not reasonably assured at the inception of the agreement, and (ii) there are no future performance obligations associated with the milestone payment.
	Net Income (Loss) Per Share
	Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share includes any dilutive impact from convertible debt, stock options and warrants outstanding using the treasury stock method.
	The following is a reconciliation of the numerator and denominator used in basic and diluted income (loss) per share computations for the three-month and six-month periods in 2004 and 2003, respectively:

6

	Three months ended					Six months ended
	June 30,					June 30,
	2004			2003		2004			2003
Numerator:
Net income (loss)	$	(2,877,000	)	$	5,124,000	$	(6,010,000	)	$	2,262,000
Effect of dilutive securities:
Interest on convertible note		—			24,000		—			—
Net income (loss) used for diluted net income (loss) per share	$	(2,877,000	)	$	5,148,000	$	(6,010,000	)	$	2,262,000
Denominator:
Weighted-average shares outstanding used for calculating basic net income (loss) per share		44,612,260			37,672,876		44,590,674			37,497,477
Effect of dilutive securities:
Stock options		—			2,241,170		—			1,637,493
Warrants		—			299,835		—			203,994
Convertible note		—			276,530		—			—
Weighted-average shares used for calculating diluted net income (loss) per share		44,612,260			40,490,411		44,590,674			39,338,964

Accounting For Stock-Based Compensation

The Company accounts for its stock option and employee stock purchase plans under the provisions of Accounting Principles Board Opinion 25 (“APB 25”) and related Interpretations. Accordingly, the Company does not recognize compensation expense in accounting for its stock option and employee stock purchase plans for awards to employees and directors granted with exercise prices at fair market value.

Pro forma information regarding net income (loss) and net income (loss) per share is required by Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”) as amended by Statement of Financial Accounting Standards No. 148 “Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS 148”) and has been determined as if the Company had accounted for its stock awards under the fair value method of that Statement. The fair value for the options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the three-month and six-month periods ended June 30, 2004 and the corresponding periods in 2003:

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2004			2003			2004			2003
Weighted-average fair value of stock options granted	$	3.15		$	4.15		$	3.35		$	2.79
Risk-free interest rate		2.30	%		2.00	%		2.30	%		2.00	%
Dividend yield		0.00	%		0.00	%		0.00	%		0.00	%
Volatility factors of the expected market price of our Common Stock		85.00	%		93.00	%		88.00	%		93.00	%
Weighted-average expected life of option (years)		4			4			4			4

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock awards have characteristics significantly different from those of traded options, and because changes in subjective input assumptions can materially affect the fair value estimate, in the Company’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee and director stock options and stock purchases.

The following table illustrates the Company’s pro forma net income (loss) and net income (loss) per share, had compensation expense for the Company’s option and employee purchase plans been

7

determined based on the fair value at the grant date consistent with the provisions of SFAS 123, as amended by SFAS 148:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Net income (loss) — as reported	$	(2,877,000	)	$	5,124,000		$	(6,010,000	)	$	2,262,000
Total stock-based employee compensation expense determined under the fair value based method for all awards		(1,011,000	)		(731,000	)		(1,870,000	)		(1,300,000	)
Net income (loss) — pro forma	$	(3,888,000	)	$	4,393,000		$	(7,880,000	)	$	962,000
Basic net income (loss) per share — as reported	$	(0.06	)	$	0.14		$	(0.13	)	$	0.06
Diluted net income (loss) per share — as reported	$	(0.06	)	$	0.13		$	(0.13	)	$	0.06
Basic net income (loss) per share — pro forma	$	(0.09	)	$	0.12		$	(0.18	)	$	0.03
Diluted net income (loss) per share — pro forma	$	(0.09	)	$	0.11		$	(0.18	)	$	0.03

	The effects of applying SFAS 123 for pro forma disclosures are not likely to be representative of the effects on reported net income (loss) for future years due to the different number of options granted each year.
3.	Comprehensive Income (Loss)
	Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes net unrealized gains and losses on our available-for-sale securities. For the three-month periods ended June 30, 2004 and 2003, the Company’s total comprehensive income (loss) amounted to $(2,910,000) and $5,233,000, respectively. For the six-month periods ended June 30, 2004 and 2003, the Company’s total comprehensive income (loss) amounted to $(5,987,000) and $2,350,000, respectively.
4.	Available-For-Sale Securities
	The following is a summary of available-for-sale securities at June 30, 2004 and December 31, 2003:

			Gross		Estimated
	Amortized		Unrealized		Fair
	Cost		Gains		Value
June 30, 2004:
Certificate of deposit	$	801,000	$	—	$	801,000
U.S. government obligations		30,665,000		—		30,665,000
Short-term municipal securities		9,100,000				9,100,000
Corporate equity securities		51,000		199,000		250,000
	$	40,617,000	$	199,000	$	40,816,000
December 31, 2003:
Certificate of deposit	$	798,000	$	—	$	798,000
U.S. government obligations		38,259,000		—		38,259,000
Short-term municipal securities		9,050,000				9,050,000
Corporate equity securities		51,000		176,000		227,000
	$	48,158,000	$	176,000	$	48,334,000

As of June 30, 2004, the available-for-sale securities are included as follows: $30,665,000 in cash            and cash equivalents; $694,000 in restricted short-term investments and $9,457,000 in other short-term investments. As of December 31, 2003, the available-for-sale securities are included as follows: $38,259,000 in cash and cash equivalents; $695,000 in restricted short-term investments and $9,380,000 in other short-term investments. As of June 30, 2004 and December 31, 2003 all available-for sale securities excluding the short-term municipal securities had maturities of 12 months or less. The short-term municipals are auction rate securities which have long final maturities, however,

8

because they are highly rated, highly liquid and their interest rate is reset at auction every 30 days, they are included as available-for sale securities. Our interest rate risk associated with the auction rate securities is limited due to this interest rate reset mechanism.

5.	Inventories
	The following is a summary of inventories at June 30, 2004 and December 31, 2003:

	June 30,		December 31,
	2004		2003
Raw materials	$	1,680,000	$	1,577,000
Work in progress		305,000		1,955,000
Finished goods		3,130,000		2,246,000
	$	5,115,000	$	5,778,000

6.	Intangible Assets
	The following is a summary of intangible assets:

	June 30,			December 31,
	2004			2003
Product rights	$	2,456,000		$	2,456,000
Accumulated amortization		(1,879,000	)		(1,844,000	)
	$	577,000		$	612,000

	Acquired ZADAXIN product rights are being amortized on a straight-line basis beginning in September 1998. Amortization expenses for the three-month and six-month periods ended June 30, 2004 and 2003 were both $17,500 and $35,000, respectively. For the years ending December 31, 2004 through 2012, annual amortization expense is expected to be $70,000. Based upon the progress in the ZADAXIN clinical trials and the Company’s actual experience of product sales, the Company assessed that the acquired product rights will be useful to the Company through 2012 when the European patent for the use of ZADAXIN in the treatment of hepatitis C expires. The Company’s policy is to identify and record impairment losses, as circumstances dictate, on intangible product rights when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.
7.	Contract Revenue
	In January 2002, the Company received $2,685,000 from its European partner, Sigma-Tau, under the terms of its collaborative agreement announced in late December 2001. This receipt has been recorded as deferred revenue and is being recognized as contract revenue over the course of the ZADAXIN hepatitis C U.S. clinical program and the period of sharing the clinical data from this program with Sigma-Tau, the substantive performance requirements under the contract. In June 2004, the Company received a $1,000,000 milestone payment from Sigma-Tau for the enrollment of 1,000 patients into the U.S. hepatitis C clinical trials. This milestone payment has been recognized as contract revenue in the three-month period ended June 30, 2004 as the substantive milestone event has been completed and there are no future performance obligations associated with the milestone payment.

9

8.

Subsequent Event

We recently announced that Donald Sellers has resigned as President and Chief Executive Officer of SciClone. Mr. Sellers also resigned from our Board of Directors, but will continue to act as a consultant to the Company. The Board of Directors is actively working to identify a successor. In the interim, Alfred Rudolph, M.D., Chief Operating Officer, and Richard Waldron, Chief Financial Officer, have jointly formed an Office of the President to manage the operations of the Company along with the Board’s continuing oversight.

10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

     This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on our current expectations, estimates and projections about our business, industry, management’s beliefs and certain assumptions made by us. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe” or similar expressions are intended to identify forward-looking statements including those statements we make regarding our future financial results; anticipated product sales; the sufficiency of our resources to complete clinical trials; and other new product development initiatives; the timing and outcome of clinical trials; the timing of completion of therapy and observation for our clinical trials; the ability of the Company to function effectively while we work to identify a new Chief Executive Officer; the preparation and timing of our Japanese New Drug Application and other potential New Drug Applications in the United States and other countries; ZADAXIN’s ability to complement existing therapies; prospects for ZADAXIN and our plans for its enhancement and commercialization; future size of the worldwide hepatitis C virus market; research and development and other expense levels; cash and other asset levels; levels of gross margin and cost of product sales and the allocation of financial resources to certain trials and programs. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors including, but not limited to, those described under the caption “Risk Factors” in this Quarterly Report on Form 10-Q. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Overview

     SciClone Pharmaceuticals, Inc. is a biopharmaceutical company engaged in the development and commercialization of therapeutics to treat life-threatening diseases. We are currently evaluating our lead product, ZADAXIN, in several late stage clinical trials for the treatment of patients with the hepatitis C virus, or HCV, the hepatitis B virus, or HBV, and certain types of cancer. Our primary focus is the successful completion of our two ongoing ZADAXIN phase 3 HCV clinical trials in the United States. We believe the worldwide market for HCV therapies was approximately $3 billion in 2003 and could exceed $8 billion in 2012. If approved by the U.S. Food and Drug Administration (FDA), we expect ZADAXIN to complement other HCV therapies and to expand the HCV market opportunity. In addition to the HCV trials in the United States, ZADAXIN is also being evaluated in a recently completed phase 3 HBV clinical trial in Japan, an ongoing phase 2 malignant melanoma clinical trial in Europe with our exclusive marketing partner for Western Europe, Sigma-Tau, two ongoing phase 2 pilot studies in the United States for the treatment of liver cancer, an ongoing HCV pilot clinical trial in Mexico and an ongoing HBV clinical trial in Taiwan. We recently announced plans for a ZADAXIN phase 3 hepatitis C triple therapy clinical trial in Europe. Our other principal drug development candidate is SCV-07, a potentially orally available therapeutic to treat viral and other infectious diseases.

Results of Operations

     Total Revenue

     Product sales were $5,613,000 and $11,027,000 for the three-month and six-month periods ended June 30, 2004, as compared to $16,207,000 and $21,207,000 for the corresponding periods in 2003. All product sales in each period were derived from sales of ZADAXIN. The higher levels of sales in the 2003 periods were related to an unanticipated increase in volume of ZADAXIN product sold in response to the SARS epidemic in China. Product prices have remained stable throughout the 2003 and 2004 periods. Sales to

11

customers in China accounted for approximately 91% and 90% of this revenue for the three-month and six-month periods ended June 30, 2004.

     For the three-month period ended June 30, 2004, sales to one importing agent in China accounted for approximately 91% of our product sales. However, for the six-month period ended June 30, 2004, the same importing agent in China accounted for only 65% of our product sales and another importing agent in China accounted for 25% of our product sales.

     Contract revenue was $1,135,000 and $1,363,000 for the three-month and six-month periods ended June 30, 2004 as compared to $224,000 and $448,000 for each of the corresponding periods in 2003. We recognized $134,000 and $268,000 of contract revenue for the three-month and six-month periods ended June 30, 2004, respectively, and all of the revenue in the corresponding 2003 periods, in connection with the $2,685,000 payment we received from Sigma-Tau in January 2002. This revenue is recognized as contract revenue over the course of the ZADAXIN hepatitis C U.S. clinical program and the period of sharing the clinical data from this program with Sigma-Tau in accordance with the requirements under our contract with Sigma-Tau. During the three-month period ended June 30, 2004, we also recognized a $1,000,000 milestone payment from Sigma-Tau for the enrollment of 1,000 patients in our phase 3 HCV clinical trials.

     Cost of Product Sales and Gross Margin on Product Sales

     Gross margin on product sales was 79% for the three-month and six-month periods ended June 30, 2004, as compared to 82% for the three-month period ended June 30, 2003 and 81% for the six-month period ended June 30, 2003. The higher levels of gross margin on product sales for the 2003 periods is primarily due to the significantly higher volume of product sales in those periods. We expect cost of product sales, and hence gross margin on product sales, to vary from period to period, depending upon the level of ZADAXIN sales, the absorption of product-related fixed costs, and any charges associated with excess or expiring finished product inventory.

     Research and Development

     Research and development expenses were $5,145,000 and $9,076,000 for the three-month and six-month periods ended June 30, 2004, as compared to $4,308,000 and $8,091,000 for the corresponding periods in 2003. The increase was primarily to support our ZADAXIN phase 3 clinical trials in the United States. The initiation and continuation of our current clinical development programs has had and will continue to have a significant effect on our research and development expenses. We expect an increase in research and development expenses during the third and fourth quarters of 2004 compared to the first half of the current year and the first half of 2003. The expected increase is primarily due to an anticipated increase in expenses relating to our phase 3 HCV clinical trials and other increases in research and development expenses. Due to the uncertain nature of the clinical trial process, it is not possible to determine the total cost expected to be incurred for each trial. In general, we expect research and development expenses to vary substantially from quarter to quarter as we pursue our strategy of initiating additional preclinical and clinical trials and testing, acquiring product rights, and expanding regulatory activities.

     Sales and Marketing

     Sales and marketing expenses were $2,148,000 and $4,591,000 for the three-month and six-month periods ended June 30, 2004, as compared to $3,025,000 and $5,254,000 for the corresponding periods in 2003. The higher levels of sales and marketing expenses in the 2003 periods were associated with higher levels of product sales. We expect sales and marketing expenses to increase in the next several quarters and years as we expand our commercialization and marketing efforts.

12

     General and Administrative

     General and administrative expenses were $1,156,000 and $2,449,000 for the three-month and six-month periods ended June 30, 2004, as compared to $1,035,000 and $2,047,000 for the corresponding periods in 2003. The increases in the 2004 periods were primarily attributable to greater general and administrative activities associated with increased securities regulation requirements. In the near term, we expect general and administrative expenses to vary from quarter to quarter and to increase particularly due to increased audit costs and other activities related to compliance with additional securities regulation requirements.

     Interest and Investment Income and Expense

     Interest and investment income was approximately $112,000 and $228,000 for the three-month and six-month periods ended June 30, 2004, as compared to $43,000 and $96,000 for the corresponding periods in 2003. The increase was primarily due to higher cash balances earning interest in the 2004 period. Interest and investment expense is primarily related to the $5,600,000 of convertible notes payable outstanding throughout the six-month periods ended June 30, 2004 and 2003.

     Liquidity and Capital Resources

     At June 30, 2004 and December 31, 2003, we had $54,970,000 and $62,975,000, respectively, in cash, cash equivalents and short-term investments including $694,000 of restricted short-term investments. We currently estimate cash, cash equivalents and short-term investments at December 31, 2004 will be lower than the balance at June 30, 2004. The expected decrease in this balance is attributable to an expected net loss and no planned financing activities in 2004. The short-term investments consist primarily of highly liquid marketable securities. Our restricted short-term investments relate to two letters of credit each secured by a certificate of deposit. At both June 30, 2004 and December 31, 2003, the letters of credit totaled $694,000 and were comprised of $633,000 under our lease agreement and $61,000 to facilitate our value added tax filings in Europe.

     Net cash used by operating activities amounted to $8,139,000 for the six-month period ended June 30, 2004 as compared to net cash provided by operating activities in the amount of $112,000 in the corresponding period in 2003. The change was primarily due to net income generated in the 2003 period compared to net loss incurred in the 2004 period.

     Net cash provided by financing activities amounted to $160,000 for the six-month period ended June 30, 2004 and was derived from the issuance of common stock under our employee stock purchase plan.

     We intend to give priority use of our financial resources to ZADAXIN clinical programs in the United States. We believe our existing capital resources and funds from product sales are sufficient to complete our current U.S. phase 3 clinical trials and, if the trials are successful and we receive FDA approval, to begin commercialization of ZADAXIN in the United States. We also believe that our current resources are sufficient to permit us to undertake certain additional product development initiatives over the new two years. However, we cannot assure you that such funds will be sufficient, or that sales of ZADAXIN, if approved in the United States, will result in profitable operations. In the event we need to raise additional funds, the unavailability or the inopportune timing of any financing could prevent or delay our long-term product development and commercialization programs, either of which would severely hurt our business. The need, timing and amount of any such financing would depend upon numerous factors, including the level of ZADAXIN sales, the timing and amount of manufacturing costs related to ZADAXIN, the availability of complementary products, technologies and businesses, the initiation and continuation of preclinical and clinical trials and testing, the timing of regulatory approvals, developments in relationships with existing or future collaborative parties and the status of competitive products

13

Contractual Obligations

     For the six-month period ending June 30, 2004, the only significant change in our reported payments due under contractual obligations at December 31, 2003 is an expected total payment of $4,000,000 to our European marketing and development partner, Sigma-Tau, to conduct and complete a hepatitis C clinical trial in Europe.

Off-Balance Sheet Arrangements

     There were no off-balance sheet arrangements in the three-month and six-month periods ended June 30, 2004.

Risk Factors

     You should carefully consider the risks described below, in addition to the other information in this report on Form 10-Q and our report on Form 10-K for the year ended December 31, 2003, before making an investment decision. Each of these risk factors could adversely affect our business, financial condition, and operating results as well as adversely affect the value of an investment in our common stock.

If we are unable to commercialize ZADAXIN in various markets for multiple indications, particularly in the United States for the treatment of HCV, our business will be harmed.

     Our ability to achieve and sustain operating profitability depends in large part on our ability to commence, execute and complete clinical programs and obtain additional regulatory approvals for ZADAXIN and other drug candidates, particularly in the United States, Europe and Japan. We are also dependent on our ability to increase ZADAXIN sales in existing markets and launch ZADAXIN in new markets. In particular, our ability to achieve and sustain profitability will depend in large part on our ability to commercialize ZADAXIN for the treatment of HCV in the United States. We cannot assure you that we will achieve significant levels of sales or that we will receive approval for ZADAXIN for the treatment of HCV in the United States or for the treatment of HCV or other indications in other countries. If we are unable to do so, our business will be harmed.

If we do not obtain regulatory approval for ZADAXIN for the intended indications that we are evaluating, our revenues will be limited and we will not become profitable.

     Our ability to execute on our business strategy requires that we obtain regulatory approval for the use of ZADAXIN, particularly for the treatment of HCV in the United States, both HBV and HCV in Japan and both HCV and malignant melanoma in Europe. If our current phase 3 trials in the United States and current and future trials in Europe yield favorable results, we intend to submit applications for marketing approval of ZADAXIN for the treatment of HCV in the United States and through our partner, Sigma-Tau, for the treatment of HCV and malignant melanoma in Europe. Based on the results of our recently completed phase 3 trial in Japan, we intend to submit a regulatory filing for the treatment of HBV in Japan. The regulatory approval processes in the United States, Europe and Japan are demanding and typically require 12 months or more in the United States and 18 months or more in Europe and Japan from the date of submission of a New Drug Application. We have committed significant resources, including capital and time, to develop ZADAXIN, particularly for HCV in the United States, with the goal of obtaining such approvals. If we do not obtain these approvals, we will be unable to achieve any substantial increase in our revenue.

     All new drugs, including our products, which have been developed or are under development, are subject to extensive and rigorous regulation by the FDA and comparable agencies in state and local jurisdictions and in foreign countries. These regulations govern, among other things, the development, testing, manufacturing, labeling, storage, pre-market approval, importation, advertising, promotion, sale and

14

distribution of our products. These regulations may change from time to time and new regulations may be adopted.

     Obtaining regulatory approval in developing countries is time-consuming and expensive. In some countries where we are contemplating marketing and selling ZADAXIN, the regulatory approval process often relies on prior approvals obtained in the United States, Europe or Japan. Without such prior approvals, our ability to obtain regulatory approvals for ZADAXIN in these countries may be delayed or prevented. In addition, to secure these regulatory approvals, we will need, among other things, to demonstrate favorable results from additional clinical trials of ZADAXIN. Even if we are able to complete the clinical trials we have sponsored or are planning in a timely or cost-effective manner, these trials may not fulfill the applicable regulatory approval criteria, in which case we will not be able to obtain regulatory approval in these countries. We cannot assure you that we will ultimately obtain regulatory approvals in our targeted countries in a timely and cost-effective manner or at all. If we fail to obtain the required regulatory approvals to develop, market and sell our products in countries where we currently do not have such rights, our revenues will be limited.

     Satisfaction of government regulations may take several years and the time needed to satisfy them varies substantially based on the type, complexity and novelty of the pharmaceutical product. As a result, government regulation may cause us to delay the introduction of, or prevent us from marketing, our existing or potential products for a considerable period of time and impose costly procedures upon our activities. Even if we obtain regulatory approval for our products, such approval may impose limitations on the indicated uses for which our products may be marketed. Unsatisfactory data resulting from clinical trials may also adversely affect our ability to market and sell ZADAXIN in markets where it is approved for sale.

If the results of our clinical trials are not favorable, we will be unable to obtain regulatory approval for the intended indications we are evaluating.

     To obtain regulatory approvals, we must, among other requirements, complete carefully controlled and well-designed clinical trials demonstrating that a particular drug is safe and effective for the applicable disease. We cannot depend on data from prior trial results to predict or demonstrate that our drug products are safe and efficacious under regulatory guidelines to qualify for commercial sale. We cannot assure you, nor can you rely on our previous clinical trial results to predict, that our ongoing or future clinical trials will yield favorable results. Adverse or inconclusive clinical results would prevent us from filing for regulatory approval of ZADAXIN (thymosin alpha 1) for the indications that we are evaluating, and our current programs in those areas would fail. In the past, Alpha 1 Biomedical, from which we acquired certain rights to thymosin alpha 1, conducted a phase 3 clinical trial of thymosin alpha 1 as a therapy for HBV that did not produce statistically significant results and Alpha 1 Biomedical did not submit a new drug application to the FDA.

     We are currently conducting phase 3 clinical trials based on the use of ZADAXIN in combination with pegylated interferon alpha for the treatment of HCV patients who did not previously respond to treatment. We cannot assure you that these phase 3 clinical trials will yield sufficient or adequate data to demonstrate appropriate safety and efficacy under FDA guidelines. Any failure to obtain sufficient or adequate data could delay or prevent us from securing FDA approval.

     Our two phase 3 HCV clinical trials in the United States have been designed to show that the combination of ZADAXIN and pegylated interferon alpha adds a significant clinical benefit when compared to the use of pegylated interferon alpha alone in non-responders. We cannot assure you that the results of this combination therapy will yield the favorable results we expect, or that the independent use of pegylated interferon alpha will not perform better than anticipated, which could reduce the chances that a new drug application, or NDA, will be approved. If the combination therapy of ZADAXIN and pegylated interferon alpha causes significant adverse side effects beyond those caused by pegylated interferon alpha alone, our

15

clinical trials could be delayed, patients may drop out at a greater than anticipated rate, we may be forced to halt the trials or the FDA may reject an NDA due to safety issues. If any of the foregoing occurs, our efforts to market and sell ZADAXIN in the United States will be significantly impaired, our business will suffer and the price of our stock may decline.

     Our phase 3 HBV clinical trial in Japan was designed to demonstrate a clinical benefit measured by an analysis of a combination of safety and efficacy data points. We cannot assure that the results of this study will warrant favorable consideration by the Japanese Ministry of Health and Welfare or result in a marketing registration of ZADAXIN. If additional studies or other data are required for regulatory consideration, our efforts to market and sell ZADAXIN in Japan will be significantly impaired, our business will suffer and the price of our stock may decline.

If we experience higher than anticipated patient drop out rates in our clinical trials, we may not be able to obtain regulatory approval.

     Each of our two current phase 3 HCV clinical trials in the United States have enrolled the planned number of 500 patients, one trial treating patients with no liver damage and the other trial treating patients with mild cirrhosis of the liver. The trials require patient treatment for twelve months and a follow-up observation period for an additional six months. The full enrollment of the second trial has recently been achieved and all patients are scheduled to have completed therapy and observation by the end of 2005. If patient drop out rates during the course of either trial are higher than anticipated, our ability to proceed with our clinical trials and prepare an NDA would be adversely affected.

We cannot predict the safety profile of the use of ZADAXIN when used in combination with other drugs.

     Many of our trials involve the use of ZADAXIN in combination with other drugs. Some of these drugs are known to cause adverse patient reactions. Even if ZADAXIN does not produce adverse side effects when used alone, we cannot predict how it will work with other drugs, including causing possible adverse side effects not directly attributable to the other drugs that could compromise the safety profile of ZADAXIN when used in certain combination therapies.

If we lose key personnel or are unable to attract and retain additional, highly skilled personnel required for the expansion of our activities, our business will suffer. Our Chief Executive Officer has recently resigned and the Board of Directors is conducting a search for his replacement.

     We are highly dependent upon our ability to attract and retain qualified personnel because of the specialized, scientific and worldwide nature of our business. Donald Sellers resigned as our Chief Executive Officer on July 14, 2004. While we have established an Office of the President, pursuant to a succession plan previously adopted by the Board of Directors, and believe that the Company will function effectively while we work to identify a new Chief Executive Officer, we may still be affected adversely, particularly if we cannot complete such work in a reasonable time frame There is intense competition for qualified management, scientific and technical personnel in the pharmaceutical industry, and we may not be able to attract and retain the qualified personnel we need to grow and develop our business globally. In addition, we assign numerous key responsibilities to a limited number of individuals, and we would experience difficulty in finding immediate replacements for any of them. If we were unable to attract and retain qualified personnel as needed or promptly replace those employees who are critical to our product development and commercialization, the development and commercialization of our products would be adversely affected. At this time, we do not maintain “key person” life insurance on any of our key personnel.

Our revenue is dependent on the sale of ZADAXIN in foreign countries, particularly China, and if we experience difficulties in our foreign sales efforts, our financial condition will be harmed.

16

     Our product revenue in the near term is highly dependent on the sale of ZADAXIN in foreign countries. If we experience difficulties in our foreign sales efforts, our business will suffer and our financial condition will be harmed. Substantially all of our ZADAXIN sales are to customers in China. Sales of ZADAXIN in China may be limited due to the low average personal income, lack of patient cost reimbursement, poorly developed infrastructure and existing and potential competition from other products, including generics. Several local companies have introduced lower priced locally manufactured generic competitive products. If these sales continue, there could be a negative impact on the price and the volume of ZADAXIN sold in China and this would harm our business.

     In addition, our ZADAXIN sales and operations in other parts of Asia, as well as in Latin America and the Middle East, are subject to a number of risks, including difficulties and delays in obtaining registrations, permits, pricing approvals and reimbursement and unexpected changes in regulatory requirements. In addition, we experience other issues with managing foreign sales operations including long payment cycles, difficulties in accounts receivable collection and, especially from significant customers, fluctuations in the timing and amount of orders. Operations in foreign countries also expose us to risks relating to difficulties in enforcing our proprietary rights, currency fluctuations and adverse or deteriorating economic conditions.

     We do not have product sales in the United States with which to offset any decrease in our revenue from ZADAXIN sales in Asia, Latin America and the Middle East. In addition, some countries in these regions, including China, regulate pharmaceutical prices and pharmaceutical importation. These regulations may reduce prices for ZADAXIN to levels significantly below those that would prevail in an unregulated market, limit the volume of product which may be imported and sold or place high import duties on the product, any of which may limit the growth of our revenues or cause them to decline.

Because of China’s tiered method of importing and distributing finished pharmaceutical products, our quarterly results may vary substantially from one period to the next.

     China uses a tiered method to import and distribute finished pharmaceutical products. At each port of entry, and prior to moving the product forward to the distributors, government-licensed importing agents must process and evaluate each shipment to determine whether such shipment satisfies China’s quality assurance requirements. In order to efficiently manage this process, the importing agents typically place large, and therefore relatively few, orders within any six month period. Therefore, our sales to an importing agent can vary substantially from quarter to quarter depending on the size and timing of the orders, which has in the past and may in the future cause our quarterly results to fluctuate. We rely on six importers to supply substantially all of our product in China. Because we use a small number of importing agents in China, our receivables from any one importing agent are material, and if we were unable to collect receivables from any importer, our business and cash-flow would be adversely affected.

Our sales of ZADAXIN may fluctuate due to seasonality of product orders and sales in any quarter may not be indicative of future sales.

     Our sales for the quarter ended June 30, 2003 were greatly affected by the demand in China for ZADAXIN in connection with the treatment of SARS. It is not possible to predict at this time if SARS will re-emerge, like influenza, as a seasonal public health problem and what effect, if any, this would have on future sales of ZADAXIN. To the extent that ZADAXIN is purchased in connection with future outbreaks of SARS or other seasonal viral contagions, product sales could become more concentrated in certain quarters of the calendar year. Quarterly sales levels could fluctuate and sales in any quarter may not be indicative of sales in future periods.

17

Due to the outbreak of SARS in China, sales of ZADAXIN in the second quarter of 2003 were significantly higher than expected and are not indicative of future sales.

     Our sales for the quarter ended June 30, 2003 were more than 200% greater than sales for any quarter in our history as a result of a previously unanticipated increase in sales of ZADAXIN to hospitals in China. This increase was related to the use of immune system enhancers, including ZADAXIN, in connection with the treatment of severe acute respiratory syndrome, or SARS. In future quarters, sales of ZADAXIN for the treatment of SARS could be affected by changes in treatment in China, changes in the rate of infection and the emergence of evidence as to the effectiveness or ineffectiveness of ZADAXIN or of other potential treatments for SARS.

     As a result of the containment of the SARS epidemic, we expect sales in future quarters to be more consistent with sales patterns of the third and fourth quarters of 2003 and the first and second quarters of 2004, each of which have significantly lower sales results than those of the second quarter in 2003. We could experience fluctuations in sales in future quarters as a result of similar factors.

If we fail to protect our products, technologies and trade secrets, we may not be able to successfully use, manufacture, market or sell our products, or we may fail to advance or maintain our competitive position.

     Our success depends significantly on our ability to obtain and maintain meaningful patent protection for our products and technologies and to preserve our trade secrets. Our pending patent applications may not result in the issuance of patents in the future. Our patents or patent applications may not have priority over others’ applications. Our existing patents and additional patents that may be issued, if any, may not provide a competitive advantage to us or may be invalidated or circumvented by our competitors. Others may independently develop similar products or design around patents issued or licensed to us. Patents issued to, or patent applications filed by, other companies could harm our ability to use, manufacture, market or sell our products or maintain our competitive position with respect to our products. Although many of our patents relating to ZADAXIN have expired, including composition of matter patents, we have rights to other patents and patent applications relating to ZADAXIN and ZADAXIN analogues, including method of use patents with respect to the use of ZADAXIN for certain indications. If other parties develop generic forms of ZADAXIN for other indications, including conducting clinical trials for such indications, our patents and other rights might not be sufficient to prohibit them from marketing and selling such generic forms of ZADAXIN. If other parties develop analogues or derivatives of ZADAXIN, our patents and other rights might not be sufficient to prohibit them from marketing these analogues or derivatives.

     Pharmaceutical products are either not patentable or have only recently become patentable in some of the countries in which we market or may market ZADAXIN. Past enforcement of intellectual property rights in many of these countries, including China in particular, has been limited or non-existent. Future enforcement of patents and proprietary rights in many other countries will likely be problematic or unpredictable. We are aware that other companies are marketing generic thymosin alpha 1 in China, possibly in violation of our trademark or other rights, and we expect such violations of our rights to continue. Moreover, the issuance of a patent in one country does not assure the issuance of a similar patent in another country. Claim interpretation and infringement laws vary by nation, so the extent of any patent protection is uncertain and may vary in different jurisdictions.

If we are involved in intellectual property claims and litigation, the proceedings may divert our resources and subject us to significant liability for damages, substantial litigation expense and the loss of our proprietary rights.

     Our commercial success depends in part on us not infringing valid, enforceable patents or proprietary rights of third parties, and not breaching any licenses that may relate to our technologies and products. We are

18

aware of a third-party patent that may relate to our products and may cover a method of action used by ZADAXIN. We cannot assure you that our mechanism of action does not infringe on their claim. In addition, we may not be aware of all patents or patent applications that may impact our ability to make, use or sell any of our potential products. For example, U.S. patent applications may be kept confidential for 12 or more months while pending in the Patent and Trademark Office, and patent applications filed in foreign countries are often first published six months or more after filing. It is possible that we may unintentionally infringe these patents or other patents or proprietary rights of third parties. We may in the future receive notices claiming infringement from third parties as well as invitations to take licenses under third-party patents. Any legal action against us or our collaborative partners claiming damages and seeking to enjoin commercial activities relating to our products and processes affected by third-party rights may require us or our collaborative partners to obtain licenses in order to continue to manufacture or market the affected products and processes. Our efforts to defend against any of these claims, regardless of merit, would require us to devote resources and attention that could have been directed to our operations and growth plans. In addition, these actions may subject us to potential liability for damages. We or our collaborative partners may not prevail in a patent action and any license required under a patent may not be made available on commercially acceptable terms, or at all. Any conflicts resulting from the patent rights of others could significantly reduce the coverage of our patents and limit our ability to obtain meaningful patent protection.

     If other companies obtain patents with conflicting claims, we may be required to obtain licenses to those patents or develop or obtain alternative technology to manufacture or market the affected products and processes. We may not be able to obtain any such licenses on acceptable terms or at all. Any failure to obtain such licenses could delay or prevent us from pursuing the development or commercialization of our potential products. Our efforts to defend against any of these claims would require us to devote resources and attention that could have been directed to our operations and growth plans.

     We may need to initiate litigation, which could be time-consuming and expensive, to enforce our proprietary rights or to determine the scope and validity of others’ rights. If litigation results, a court may find our patents or those of our licensors invalid or may find that we have infringed on a competitor’s rights. If any of our competitors have filed patent applications in the United States which claim technology we also have invented, the Patent and Trademark Office may require us to participate in expensive interference proceedings to determine who has the right to a patent for the technology. These actions may subject us to potential liability for damages. We or our collaborative partners may not prevail in a patent action and any license required under a patent may not be made available on commercially acceptable terms, or at all.

We rely on third parties to supply our clinical trial and commercial products. Deficiencies in their work could delay or harm one or more important areas of our business including our sales, clinical trials or the regulatory approval process.

     We rely on third parties, who are subject to regulatory oversight, to supply our clinical and commercial products. Typically we have at any time only one supplier for each phase of manufacturing of our product. If unanticipated deficiencies in these suppliers occur, we could experience delays in our ability to assemble a timely and acceptable NDA. If sales of ZADAXIN were to increase dramatically, our third-party suppliers may not be able to supply ZADAXIN quickly enough, which could limit our ability to satisfy increased demand or could adversely affect the ability of these suppliers to provide products for our clinical trials. Not all of the ZADAXIN planned to be used in our HCV clinical trials has been manufactured and received. Roche is our exclusive supplier of pegylated interferon alpha for our current U.S. clinical trials, and we have not received all the pegylated interferon to be used in the clinical trials. Roche’s agreement with us to provide our supply of pegylated interferon alpha can be terminated by them without cause on 30-days’ notice, in which case we would need to purchase their product for use in the clinical trials. Any delay in receiving, or a recall of, pegylated interferon alpha or ZADAXIN, including by reason of Roche’s termination of its supply arrangement with us, could delay the clinical trials or detract from the integrity of the trial data. If any of the foregoing occurs, our ability to complete our clinical trials in the United States and to market and sell

19

ZADAXIN worldwide will be delayed or impaired, our business will suffer and the price of our stock may decline. We have been in the process of qualifying a new manufacturer of ZADAXIN and if we encounter problems with this process of validation, our sales or our clinical trials could be adversely affected.

If we are not able to establish and maintain adequate manufacturing relationships, the development and sale of our products could be impaired.

     To be successful, our products must be manufactured in commercial quantities, in compliance with stringent regulatory requirements and at an acceptable cost. Typically we have at any time only one supplier for each phase of manufacturing of our product. Manufacturing interruptions or failure to comply with regulatory requirements could significantly delay clinical development of potential products and reduce third-party or clinical researcher interest and support of proposed trials. These interruptions or failures could also impede commercialization of our products, including sales of ZADAXIN in approved markets, and impair our competitive position. Any of these developments would harm our business.

     We are in the process of qualifying a new supplier for ZADAXIN with regulatory agencies. This process, quality assurance and other steps could cause delays or interruptions of supply. If we do not obtain the required regulatory approvals for a manufacturing change in a timely fashion, especially in China, our sales may be interrupted until the manufacturing change is approved. Although we are increasing inventories to prepare to manage any such occurrences, we may still experience interruptions in supply which could adversely affect our results.

     In some countries, a manufacturing change may require additional regulatory approvals which may delay ZADAXIN marketing approvals in new markets.

     In addition, manufacturing, supply and quality control problems may arise as we, either alone or with subcontractors, attempt to scale-up our manufacturing procedures. We may not be able to scale-up in a timely manner or at a commercially reasonable cost, either of which could cause delays or pose a threat to the ultimate commercialization of our products and harm our business.

We may not be able to successfully develop or commercialize our products.

     While we have limited sales of ZADAXIN in certain markets, we do not yet have regulatory approval for ZADAXIN for our principal target markets, and, in this respect, ZADAXIN is still being developed. Our other potential products are in earlier stages of development than ZADAXIN. To fully develop our products, we will need to commit substantial resources to extensive research, development, pre-clinical testing, clinical trials, manufacturing scale-up and regulatory approval prior to being ready for sale. We cannot assure that our efforts will produce commercially viable products. We face significant technological risks inherent in developing these products. We may also abandon some or all of our proposed products before they become commercially viable. If any of our products, even if developed and approved, cannot be successfully commercialized in a timely manner, our business will be harmed and the price of our stock may decline.

     We have not yet sold any product other than ZADAXIN and our sales have been primarily in a single country, China. Our future revenue growth depends on increased market acceptance and commercialization of ZADAXIN in additional countries, particularly in the United States, Europe and Japan. If we fail to successfully market ZADAXIN, or if we cannot commercialize this drug in the United States and other additional markets, our revenue and operating results will suffer. If unexpected and serious adverse events are reported, or if expected efficacy results are not achieved, it would have a material adverse effect on our business. Our future revenue will also depend in part on our ability to develop other commercially viable and accepted products. Market acceptance of our products will depend on many factors, including our ability to convince prospective customers to use our products as an alternative to other treatments and therapies and to convince prospective strategic partners to market our products effectively and to manufacture our products in

20

sufficient quantities with acceptable quality and at an acceptable cost. In addition, doctors must opt to use treatments involving our products. If doctors elect to use a different course of treatment, demand for our drug products would be reduced. Failure to do any of the above will hurt our operations.

We rely on third-party clinical investigators to conduct our clinical trials and, as a result, we may encounter delays outside our control.

     We have limited experience in conducting and managing clinical trials and we rely, in part, on third parties, particularly clinical research organizations and our development partners, to assist us in managing and monitoring clinical trials. Our reliance on these third parties may result in delays in completing, or failure to complete, these clinical trials if third parties fail to fulfill their obligations to us.

We may need to obtain additional capital to support our long-term product development and commercialization programs.

     We believe our existing resources will be sufficient to complete our current U.S. phase 3 clinical trials and, if the trials are successful and we receive FDA approval, to begin commercialization of ZADAXIN in the United States. However, we cannot assure that such funds will be sufficient, or that sales of ZADAXIN, if approved in the United States, will result in profitable operations. In addition, we may need additional funds in the future to support future growth and achieve profitability. If we need to raise additional funds in the future and such funds are not available on reasonable terms, if at all, our commercialization efforts may be impeded, our revenues may be limited and our operating results may suffer.

We have a history of operating losses and an accumulated deficit. We expect to continue to incur losses in the near term and may never achieve profitability.

     We have experienced significant operating losses since our inception, and as of June 30, 2004, we had an accumulated deficit of approximately $144 million. We expect our operating expenses to increase over the next several years as we plan to dedicate substantially all of our resources to expanding our development, testing and marketing capabilities, particularly in the United States, and these losses may increase if we cannot increase or sustain revenue. As a result, we may never achieve profitability.

We have limited sales, marketing and distribution capabilities, which may adversely affect our ability to successfully commercialize our products.

     We currently have limited sales, marketing and distribution capabilities, and we anticipate that we may be relying on third-party collaborators to sell, market and distribute our products for the foreseeable future. If our arrangements with these third parties are not successful, or if we are unable to enter into additional third-party arrangements, we may need to substantially expand our sales, marketing and distribution force. Our efforts to expand may not succeed, or we may lack sufficient resources to expand in a timely manner, either of which will harm our operating results. Moreover, if we are able to further expand our sales, marketing and distribution capabilities, we will begin competing with other companies that have experienced and well-funded operations. If we cannot successfully compete with these larger companies, our revenues may not grow and our business may suffer.

Commercialization of some of our products depends on collaborations with others. If our collaborators are not successful, or if we are unable to find future collaborators, we may not be able to properly develop and commercialize our products.

     We depend in part on our distributors and business partners to develop and/or promote our drugs, and if they are not successful in their efforts or fail to do so, our business will suffer. For example, Sigma-Tau is responsible for the development and marketing of ZADAXIN in Europe. We generally do not have control

21

over the amount and timing of resources that our business partners devote to ZADAXIN, and they have not always performed as or when expected. If they do not perform their obligations as we expect, particularly obligations regarding clinical trials, our development expenses would increase and the development and/or sale of our products could be limited or delayed, which could hurt our business and cause our stock price to decline. In addition, our relationships with these companies may not be successful. Disputes may arise with our collaborators, including disputes over ownership rights to intellectual property, know-how or technologies developed with our collaborators. We may not be able to negotiate similar additional arrangements in the future to develop and commercialize ZADAXIN or other products.

We may lose market share or otherwise fail to compete effectively in the intensely competitive biopharmaceutical industry.

     Competition in the biopharmaceutical industry is intense, and we expect that competition will increase. Our success depends on our ability to compete in this industry, but we cannot assure you that we will be able to successfully compete with our competitors. Increased competitive pressure could lead to intensified price-based competition resulting in lower prices and margins, which would hurt our operating results.

     We are focused on developing ZADAXIN as a treatment for HCV and HBV and certain cancers. Several large biopharmaceutical companies have substantial commitments to interferon alpha, an approved drug for treating HBV and HCV, and to lamivudine and adefovir, approved drugs to treat HBV. We cannot assure you that we will compete successfully against our competitors or that our competitors, or potential competitors, will not develop drugs or other treatments for HCV, HBV, cancer and other diseases that will be superior to ours.

If third-party reimbursement is not available or patients cannot otherwise pay for ZADAXIN, we may not be able to successfully market ZADAXIN.

     Significant uncertainty exists as to the reimbursement status of new therapeutic products, such as ZADAXIN. We cannot assure you that third-party insurance coverage and reimbursement will be available for therapeutic products we might develop. The failure to obtain third-party reimbursement for our products, particularly in the United States, Europe and Japan, would harm our business. Further, we cannot assure you that additional limitations will not be imposed in the future in the United States on drug coverage and reimbursement due to proposed health care reforms. In many emerging markets where we have marketing rights to ZADAXIN, but where government resources and per capita income may be so low that our products will be prohibitively expensive, we may not be able to market our products on economically favorable terms, if at all.

     Efforts by governmental and third-party payers to contain or reduce health care costs or the announcement of legislative proposals or reforms to implement government controls could cause us to reduce the prices at which we market our drugs, which will reduce our gross margins and may harm our business.

We may be subject to product liability lawsuits, and our insurance may be inadequate to cover damages.

     Clinical trials or marketing of any of our current and potential products may expose us to liability claims from the use of these products. We currently carry product liability insurance. However, we cannot be certain that we will be able to maintain insurance on acceptable terms, if at all, for clinical and commercial activities or that the insurance would be sufficient to cover any potential product liability claim or recall. If we fail to have sufficient coverage, our business, results of operations and cash flows could be adversely affected.

22

We depend on international sales, and global conditions could negatively affect our operating results.

     A large majority of our sales are in China. Heightened tensions resulting from the current geopolitical conditions in the Middle East, North Korea and elsewhere could worsen, causing disruptions in foreign trade, which would harm our sales. In particular, our commercial product is manufactured in Europe and distributed by us from our operations in Hong Kong. Any disruption of our supply and distribution activities due to geopolitical conditions could decrease our sales and harm our operating results.

If we are unable to comply with environmental and other laws and regulations, our business may be harmed.

     We are subject to various federal, state and local laws, regulations and recommendations relating to the use, manufacture, storage, handling and disposal of hazardous materials and waste products (including radioactive compounds and infectious disease agents), as well as safe working conditions, laboratory and manufacturing practices and the experimental use of animals. The extent of government regulation that might result from future legislation or administrative action in these areas cannot be accurately predicted.

     We do not currently maintain hazardous materials at our facilities. While we outsource our research and development programs involving the controlled use of biohazardous materials, if in the future we conduct these programs ourselves, we might be required to incur significant cost to comply with the environmental laws and regulations. Further, in the event of an accident, we would be liable for any damages that result, and the liability could exceed our resources.

Our stock price may be volatile, and an investment in our stock could suffer a decline in value.

     The market price of our common stock has experienced, and may continue to experience, substantial volatility due to many factors, some of which we have no control over, including:

• progress and results of clinical trials involving ZADAXIN;

• progress of ZADAXIN through the regulatory process, especially regulatory actions in the United States, Europe and Japan;

• timing and achievement of milestones;

• announcements of technological innovations or new products by us or our competitors;

• government regulatory action affecting our drug products or our competitors’ drug products in both the United States and foreign countries;

• developments or disputes concerning patent or proprietary rights;

• changes in company assessments or financial estimates by securities analysts;

• actual or anticipated fluctuations in our quarterly operating results;

• general stock market conditions and fluctuations for the emerging growth and biopharmaceutical market sectors;

• economic conditions in the United States or abroad; and

• broad financial market fluctuations in the United States, Europe or Asia.

23

     In the past, following periods of large price declines in the public market price of a company’s securities, securities class action litigation has often been initiated against that company. Litigation of this type could result in substantial costs and diversion of our attention and resources, which would hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.

Substantial sales of our stock or the exercise or conversion of options or convertible securities may impact the market price of our common stock.

     As of June 30, 2004, stock options to purchase 6,578,290 shares of common stock were outstanding, of which options to purchase 4,372,811 shares were exercisable. Also outstanding as of the same date were warrants exercisable for 904,760 shares of common stock at $7.00 per share and two notes convertible into a total of 684,140 shares of common stock. The note holder has the right to purchase up to $8.3 million of additional convertible notes due on or before March 2006, which, if fully issued, will be convertible into 684,140 shares of our common stock. Upon exercise of options or warrants, or conversion of the notes, these issued shares of common stock will be freely tradable.

     Future sales of substantial amounts of our common stock could adversely affect the market price of our common stock. Similarly, if we raise additional funds through the issuance of common stock or securities convertible into or exercisable for common stock, the percentage ownership of our stockholders will be reduced and the price of our common stock may fall.

Sales of our common stock by officers and directors and a former officer could affect our stock price.

     Our Board of Directors has approved an amendment to our trading policy that permits officers and directors to enter into trading plans that comply with the requirements of Rule 10b5-1 of the Securities and Exchange Act of 1934. Rule 10b5-1 allows corporate officers and directors to adopt written, pre-arranged stock trading plans when they do not have material, non-public information. Using these plans, officers and directors can gradually diversify their investment portfolios, can spread stock trades out over an extended period of time to reduce any market impact and can avoid concerns about initiating stock transactions at a time when they might be in possession of material, non-public information. As of July 20, 2004, only one director has adopted such a plan, and other directors or officers may do so in the future. In general our officers and directors have rarely sold stock in the Company, though they have held options or stock for many years. However, the recent resignation of our Chief Executive Officer may affect his personal financial plans and result in both his exercising of stock options and selling of stock which may affect the trading price of our stock. We expect future sales by officers and directors either under 10b5-1 plans or otherwise as result of their personal financial planning. We do not believe the volume of such sales would affect our trading price, however, the market could react negatively to sales by our officers and directors, affecting the trading price of our stock.

Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us, which may be beneficial to our stockholders, more difficult.

     Certain anti-takeover provisions of Delaware law and our charter documents as currently in effect may make a change in control of our company more difficult, even if a change in control would be beneficial to the stockholders. Prior to our reincorporation in Delaware, we had a stockholder rights plan, also commonly known as a “poison pill,” which we terminated in connection with the reincorporation. We currently do not intend to adopt a stockholder rights plan. However, our charter documents do contain certain anti-takeover provisions, including provisions in our certificate of incorporation providing that stockholders may not cumulate votes, stockholders’ meetings may be called by stockholders only if they hold 25% or more of our common stock and provisions in our bylaws providing that the stockholders may not take action by written consent. Additionally, our board of directors has the authority to issue 10 million shares of preferred

24

stock and to determine the terms of those shares of stock without any further action by the stockholders. The rights of holders of our common stock are subject to the rights of the holders of any preferred stock that may be issued. The issuance of preferred stock could make it more difficult for a third-party to acquire a majority of our outstanding voting stock. Delaware law also prohibits corporations from engaging in a business combination with any holders of 15% or more of their capital stock until the holder has held the stock for three years unless, among other possibilities, the board of directors approves the transaction. Our board of directors may use these provisions to prevent changes in the management and control of our company. Also, under applicable Delaware law, our board of directors may adopt additional anti-takeover measures in the future.

Legislative actions and potential new accounting pronouncements are likely to impact our future financial position or results of operations.

     Future changes in financial accounting standards, including proposed changes in accounting for stock options, may cause adverse, unexpected fluctuations in the timing of the recognition of revenues or expenses and may affect our financial position or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with frequency and may occur in the future and we may make changes in our accounting policies in the future. Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses. Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq National Market rules, are creating uncertainty for companies such as ours and costs are increasing as a result of this uncertainty and other factors. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

We may be subject to currency exchange rate fluctuations, which could adversely affect our financial performance.

     Substantially all of our product sales are denominated in U.S. dollars. Fluctuation in the U.S. dollar exchange rate with local currency directly affects the customer’s cost for our product. In particular, a stronger U.S. dollar vis-à-vis the local currency would tend to have an adverse effect on sales and potentially on collection of accounts receivable. To date, this exposure to currency exchange rate fluctuations has been minimal because the Chinese currency has been pegged to the U.S. dollar. However, the fixed nature of the Chinese currency in relation to the U.S. dollar may not continue in the future and, consequently, our foreign operations may expose us to greater risk of currency exchange rate fluctuations in the future. In addition, we are subject to currency exchange rate fluctuations as a result of expenses incurred by our foreign operations. In particular, one of our supply arrangements under which we purchase finished products is denominated in euros. Consequently, changes in exchange rates could unpredictably and adversely affect our operating results and could result in exchange losses. To date, we have not hedged against the risks associated with fluctuations in exchange rates and, therefore, exchange rate fluctuations could have a material adverse impact on our operating results and stock price.

25

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest primarily in U.S. Treasury or U.S. government agency notes. Our investments in these notes are subject to interest rate risk. To minimize the exposure due to an adverse shift in interest rates, we invest in short-term notes and maintain an average maturity of less than one year. A hypothetical 60 basis point increase in interest rates would result in an approximate $237,964 decrease (0.6%) in fair value of our available-for-sale securities. This potential change is based on sensitivity analyses performed on our financial position at June 30, 2004. Actual results may differ materially.

     Substantially all our sales and most of our manufacturing costs to date have been in U.S. dollars. Our purchases from one of our contract manufacturers, however, are denominated in euros and this exposes us to foreign currency rate fluctuations which have been minimal to date. Consequently, changes in exchange rates could unpredictably and adversely affect our operating results and could result in exchange losses. To date, we have not hedged against the risks associated with fluctuations in exchange rates and, therefore, exchange rate fluctuations could have a material adverse impact on our operating results and stock price.

Item 4. Controls and Procedures

     Under the supervision and with the participation of our management, including our Chief Financial Officer and both members of our Office of the President, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Financial Officer and the members of our Office of the President concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

26

PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

     We held our Annual Meeting of Stockholders on May 26, 2004 to elect seven (7) directors, to ratify Ernst & Young LLP as the Company’s independent auditors, to approve the adoption of the Company’s 2004 Stock Option Plan and to approve the adoption of the Company’s 2004 Outside Directors Stock Option Plan.

     At the Annual Meeting of Stockholders, all of the director nominees were elected by the following number of votes:

			Votes
	For		Withheld
Jere E. Goyan, Ph.D.		32,681,356		2,819,575
Donald R. Sellers		33,787,486		1,713,445
John D. Baxter, M.D.		31,414,232		4,086,699
Edwin C. Cadman, M.D.		32,702,813		2,798,118
Rolf H. Henel		33,929,744		1,571,187
Jon S. Saxe		33,235,726		2,265,205
Dean S. Woodman		33,820,503		1,680,428

     Stockholders ratified the appointment of Ernst & Young LLP as the Company’s independent auditors for the fiscal year ending December 31, 2004 by the following number of votes: 34,332,936 for; 845,190 against; and 322,805 abstaining.

     Stockholders approved the adoption of the Company’s 2004 Stock Option Plan by the following number of votes: 11,883,984 for; 5,332,500 against; 152,136 abstaining; and 18,132,311 broker non-votes.

     Stockholders approved the adoption of the Company’s 2004 Outside Directors Stock Option Plan by the following number of votes: 11,259,693 for; 5,945,095 against; 163,832 abstaining; and 18,132,311 broker non-votes.

27

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit Number	Description
3(i).1(1)	Amended and Restated Certificate of Incorporation.
3(ii).1(1)	Bylaws.
4.1(2)	Rights Agreement dated as of July 25, 1997 between the Registrant and Chase Mellon Shareholder Services, LLC.
4.2(1)	First Amendment to Rights Agreement dated as of July 17, 2003 between the Registrant and Mellon Investor Services LLC.
4.3(3)*	6% Convertible Note dated as of December 7, 2000 by the Registrant in favor of UBS AG, London Branch.
4.4(3)*	Option Agreement dated as of October 26, 2000 by and between the Registrant and UBS AG, London Branch.
4.5(3)*	Amendment No. 1 to Option Agreement dated as of December 19, 2000 by and between the Registrant and UBS AG, London Branch.
4.6(4)*	6% Convertible Note dated as of March 21, 2001 by the Company in favor of UBS AG, London Branch.
4.7(4)*	Option Agreement dated as of February 16, 2001 by and between the Company and UBS AG, London Branch.
4.8(4)*	Amendment No.1 to Option Agreement dated as of March 21, 2001 by and between the Company and UBS AG, London Branch.
10.1(5)	Registrant’s 2004 Stock Option Plan.
10.2(5)	Registrant’s 2004 Outside Directors Stock Option Plan.
10.3(5)*	Amendment No. 2 to the Expanded and Amended Thymosin Alpha 1 License, Distributorship and Supply Agreement between the Registrant and Sigma-Tau Industrie Farmacetiche Riunite S.p.A., dated May 20, 2004.
10.4(5)*	Amendment No. 3 to the Expanded and Amended Thymosin Alpha 1 License, Distributorship and Supply Agreement between the Registrant and Sigma-Tau Industrie Farmacetiche Riunite S.p.A., dated May 21, 2004.
31.1(5)	Rule 13a-14(a) Certification of member of the Office of the President.
31.2(5)	Rule 13a-14(a) Certification of Chief Financial Officer and member of the Office of the President.
32.1(5)	Section 1350 Certification of member of the Office of the President.
32.2(5)	Section 1350 Certification of Chief Financial Officer and member of the Office of the President.

* Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)⁽⁴⁾, 200.83 and 230.46.

(1)	Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 28, 2003.
(2)	Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 14, 1997.
(3)	Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

28

(4)	Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on May 15, 2001.
(5)	Filed herewith.
(b)	Reports on Form 8-K

     We filed one Current Report on Form 8-K during the quarterly period covered by this report. The Current Report was dated April 27, 2004 and was furnished pursuant to Item 7 and Item 12.

29

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SCICLONE PHARMACEUTICALS, INC. (Registrant)
Date: August 6, 2004	/s/ Richard A. Waldron
	Richard A. Waldron
	Chief Financial Officer (Principal Financial & Accounting Officer)

30

INDEX TO EXHIBITS

		Sequentially
Exhibit		Numbered
Number	Exhibit	Page
3(i).1(1)	Amended and Restated Certificate of Incorporation
3(ii).1(1)	Bylaws
4.1(2)	Rights Agreement dated as of July 25, 1997 between the Registrant and Chase Mellon Shareholder Services, LLC
4.2(1)	First Amendment to Rights Agreement dated as of July 17, 2003 between the Registrant and Mellon Investor Services LLC
4.3(3)*	6% Convertible Note dated as of December 7, 2000 by the Registrant in favor of UBS AG, London Branch
4.4(3)*	Option Agreement dated as of October 26, 2000 by and between the Registrant and UBS AG, London Branch
4.5(3)*	Amendment No. 1 to Option Agreement dated as of December 19, 2000 by and between the Registrant and UBS AG, London Branch
4.6(4)*	6% Convertible Note dated as of March 21, 2001 by the Company in favor of UBS AG, London Branch
4.7(4)*	Option Agreement dated as of February 16, 2001 by and between the Company and UBS AG, London Branch
4.8(4)*	Amendment No. 1 to Option Agreement dated as of March 21, 2001 by and between the Company and UBS AG, London Branch
10.1(5)	Registrant’s 2004 Stock Option Plan
10.2(5)	Registrant’s 2004 Outside Directors Stock Option Plan
10.3(5)*	Amendment No. 2 to the Expanded and Amended Thymosin Alpha 1 License, Distributorship and Supply Agreement between the Registrant and Sigma-Tau Industrie Farmacetiche Riunite S.p.A., dated May 20, 2004.
10.4(5)*	Amendment No. 3 to the Expanded and Amended Thymosin Alpha 1 License, Distributorship and Supply Agreement between the Registrant and Sigma-Tau Industrie Farmacetiche Riunite S.p.A., dated May 21, 2004.
31.1(5)	Rule 13a-14(a) Certificate of member of the Office of the President.
31.2(5)	Rule 13a-14(a) Certification of Chief Financial Officer and member of the Office of the President
32.1(5)	Section 1350 Certification of member of the Office of the President.
32.2(5)	Section 1350 Certification of Chief Financial Officer and member of the Office of the President

* Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.46.

⁽¹⁾ Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 28, 2003.

31

(2)	Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 14, 1997.
(3)	Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.
(4)	Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on May 15, 2001.
(5)	Filed herewith.

32

EX-10.1

                                                                    EXHIBIT 10.1

                         SCICLONE PHARMACEUTICALS, INC.
                             2004 STOCK OPTION PLAN

      1.    ESTABLISHMENT, PURPOSE AND TERM OF PLAN.

            1.1 ESTABLISHMENT. The SciClone Pharmaceuticals, Inc. 2004 Stock
Option Plan (the "PLAN") is established effective as of May 26 2004, the date on
which it is approved by the stockholders of the Company (the "EFFECTIVE DATE").

            1.2 PURPOSE. The purpose of the Plan is to advance the interests of
the Participating Company Group and its stockholders by providing an incentive
to attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.

            1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Options
shall be granted, if at all, within ten (10) years from the Effective Date.

      2.    DEFINITIONS AND CONSTRUCTION.

            2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:

                  (a) "AFFILIATE" means (i) an entity, other than a Parent
Corporation, that directly, or indirectly through one or more intermediary
entities, controls the Company or (ii) an entity, other than a Subsidiary
Corporation, that is controlled by the Company directly, or indirectly through
one or more intermediary entities. For this purpose, the term "control"
(including the term "controlled by") means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
the relevant entity, whether through the ownership of voting securities, by
contract or otherwise; or shall have such other meaning assigned such term for
the purposes of registration on Form S-8 under the Securities Act.

                  (b) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"BOARD" also means such Committee(s).

                  (c) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.

                  (d) "COMMITTEE" means the compensation committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without



limitation, the power to amend or terminate the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law.

                  (e) "COMPANY" means SciClone Pharmaceuticals, Inc., a Delaware
corporation, or any successor corporation thereto.

                  (f) "CONSULTANT" means a person engaged to provide consulting
or advisory services (other than as an Employee or a Director) to a
Participating Company, provided that the identity of such person, the nature of
such services or the entity to which such services are provided would not
preclude the Company from offering or selling securities to such person pursuant
to the Plan in reliance on registration on a Form S-8 Registration Statement
under the Securities Act.

                  (g) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.

                  (h) "DISABILITY" means the permanent and total disability of
the Optionee within the meaning of Section 22(e)(3) of the Code.

                  (i) "EMPLOYEE" means any person treated as an employee
(including an Officer or a Director who is also treated as an employee) in the
records of a Participating Company and, with respect to any Incentive Stock
Option granted to such person, who is an employee for purposes of Section 422 of
the Code; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan. The Company shall determine in good faith and in the exercise of its
discretion whether an individual has become or has ceased to be an Employee and
the effective date of such individual's employment or termination of employment,
as the case may be. For purposes of an individual's rights, if any, under the
Plan as of the time of the Company's determination, all such determinations by
the Company shall be final, binding and conclusive, notwithstanding that the
Company or any court of law or governmental agency subsequently makes a contrary
determination.

                  (j) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.

                  (k) "FAIR MARKET VALUE" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its discretion,
or by the Company, in its discretion, if such determination is expressly
allocated to the Company herein, subject to the following:

                        (i) If, on such date, the Stock is listed on a national
or regional securities exchange or market system, the Fair Market Value of a
share of Stock shall be the closing price of a share of Stock (or the mean of
the closing bid and asked prices of a share of Stock if the Stock is so quoted
instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap Market or
such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in The Wall Street
Journal or such other source as the Company deems reliable. If the relevant date
does not fall on a day on which the Stock has traded on such securities exchange
or market system, the date on which the Fair Market Value shall be established
shall be the last day on which the Stock was so traded prior to



the relevant date, or such other appropriate day as shall be determined by the
Board, in its discretion.

                        (ii) If, on such date, the Stock is not listed on a
national or regional securities exchange or market system, the Fair Market Value
of a share of Stock shall be as determined by the Board in good faith without
regard to any restriction other than a restriction which, by its terms, will
never lapse.

                  (l) "INCENTIVE STOCK OPTION" means an Option intended to be
(as set forth in the Option Agreement) and which qualifies as an incentive stock
option within the meaning of Section 422(b) of the Code.

                  (m) "INSIDER" means an Officer, a Director of the Company or
other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.

                  (n) "NONSTATUTORY STOCK OPTION" means an Option not intended
to be (as set forth in the Option Agreement) or which does not qualify as an
Incentive Stock Option.

                  (o) "OFFICER" means any person designated by the Board as an
officer of the Company.

                  (p) "OPTION" means a right to purchase Stock pursuant to the
terms and conditions of the Plan. An Option may be either an Incentive Stock
Option or a Nonstatutory Stock Option.

                  (q) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee and any shares acquired upon the exercise
thereof. An Option Agreement may consist of a form of "Notice of Grant of Stock
Option" and a form of "Stock Option Agreement" incorporated therein by
reference, or such other form or forms as the Board may approve from time to
time.

                  (r) "OPTIONEE" means a person who has been granted one or more
Options.

                  (s) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.

                  (t) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation, Subsidiary Corporation or Affiliate.

                  (u) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.

                  (v) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.

                  (w) "SECTION 162(m)" means Section 162(m) of the Code.

                  (x) "SECURITIES ACT" means the Securities Act of 1933, as
amended.



                  (y) "SERVICE" means an Optionee's employment or service with
the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. An Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
an Optionee's Service shall not be deemed to have terminated if the Optionee
takes any military leave, sick leave, or other bona fide leave of absence
approved by the Company; provided, however, that if any such leave exceeds
ninety (90) days, on the one hundred eighty-first (181st) day following the
commencement of such leave any Incentive Stock Option held by the Optionee shall
cease to be treated as an Incentive Stock Option and instead shall be treated
thereafter as a Nonstatutory Stock Option unless the Optionee's right to return
to Service is guaranteed by statute or contract. Notwithstanding the foregoing,
unless otherwise designated by the Company or required by law, a leave of
absence shall not be treated as Service for purposes of determining vesting
under the Optionee's Option Agreement. An Optionee's Service shall be deemed to
have terminated either upon an actual termination of Service or upon the
corporation for which the Optionee performs Service ceasing to be a
Participating Company. Subject to the foregoing, the Company, in its discretion,
shall determine whether an Optionee's Service has terminated and the effective
date of such termination.

                  (z) "STOCK" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.

                  (aa) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.

                  (bb) "TEN PERCENT STOCKHOLDER" means a person who, at the time
an Option is granted to such person, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of Section 422(b)(6) of the Code.

            2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.

      3.    ADMINISTRATION.

            3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by
the Board. All questions of interpretation of the Plan or of any Option shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan or such Option.

            3.2 AUTHORITY OF OFFICERS. Any Officer shall have the authority to
act on behalf of the Company with respect to any matter, right, obligation,
determination or election which is the responsibility of or which is allocated
to the Company herein, provided the Officer has apparent authority with respect
to such matter, right, obligation, determination or election. The Board may, in
its discretion, delegate to a committee comprised of one or more Officers the



authority to grant one or more Options, without further approval of the Board or
the Committee, to any person eligible pursuant to Section 5, other than a person
who, at the time of such grant, is an Insider; provided, however, that (i) such
Options shall not be granted for shares in excess of the maximum aggregate
number of shares of Stock authorized for issuance pursuant to Section 4.1, (ii)
the exercise price per share of each Option shall be not less than the Fair
Market Value per share of the Stock on the effective date of grant (or, if the
Stock has not traded on such date, on the last day preceding the effective date
of grant on which the Stock was traded), and (iii) each such Option shall be
subject to the terms and conditions of the appropriate standard form of Stock
Option Agreement approved by the Board or the Committee and shall conform to the
provisions of the Plan and such other guidelines as shall be established from
time to time by the Board or the Committee.

            3.3 POWERS OF THE BOARD. In addition to any other powers set forth
in the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its discretion:

                  (a) to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;

                  (b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;

                  (c) to determine the Fair Market Value of shares of Stock or
other property;

                  (d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, including by
the withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of Service on any of the
foregoing, and (vii) all other terms, conditions and restrictions applicable to
the Option or such shares not inconsistent with the terms of the Plan;

                  (e) to approve one or more forms of Option Agreement;

                  (f) to amend, modify, extend, cancel or renew any Option or to
waive any restrictions or conditions applicable to any Option or any shares
acquired upon the exercise thereof;

                  (g) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an Optionee's
termination of Service with the Participating Company Group;

                  (h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including,



without limitation, as the Board deems necessary or desirable to comply with the
laws of, or to accommodate the tax policy or custom of, foreign jurisdictions
whose citizens may be granted Options; and

                  (i) to correct any defect, supply any omission or reconcile
any inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent not inconsistent with the
provisions of the Plan or applicable law.

            3.4 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.

            3.5 COMMITTEE COMPLYING WITH SECTION 162(m). If the Company is a
"publicly held corporation" within the meaning of Section 162(m) of the Code,
the Board may establish a Committee of "outside directors" within the meaning of
Section 162(m) to approve the grant of any Option which might reasonably be
anticipated to result in the payment of employee remuneration that would
otherwise exceed the limit on employee remuneration deductible for income tax
purposes pursuant to Section 162(m).

            3.6 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or officers or
employees of the Participating Company Group, members of the Board and any
officers or employees of the Participating Company Group to whom authority to
act for the Board or the Company is delegated shall be indemnified by the
Company against all reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty (60) days
after the institution of such action, suit or proceeding, such person shall
offer to the Company, in writing, the opportunity at its own expense to handle
and defend the same.

      4.    SHARES SUBJECT TO PLAN.

            4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be two million five hundred thousand
(2,500,000). Shares issuable under the Plan shall consist of authorized but
unissued or reacquired shares of Stock or any combination thereof. If an
outstanding Option for any reason expires or is terminated or canceled without
having been exercised in full, the shares of Stock allocable to the unexercised
portion of such Option shall again be available for issuance under the Plan.
However, except as adjusted



pursuant to Section 4.2, in no event shall more than two million five hundred
thousand (2,500,000) shares of Stock be available for issuance pursuant to the
exercise of Incentive Stock Options (the "ISO SHARE ISSUANCE LIMIT"). Shares of
Stock shall not be deemed to have been issued pursuant to the Plan to the extent
such shares are withheld in satisfaction of tax withholding obligations pursuant
to Section 9.2. If the exercise price of an Option is paid by tender to the
Company, or attestation to the ownership, of shares of Stock owned by the
Participant, the number of shares available for issuance under the Plan shall be
reduced by the gross number of shares for which the Option is exercised.

            4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. Subject to any
required action by the stockholders of the Company, in the event of any change
in the Stock effected without receipt of consideration by the Company, whether
through merger, consolidation, reorganization, reincorporation,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, split-up, split-off, spin-off, combination of shares, exchange of shares,
or similar change in the capital structure of the Company, or in the event of
payment of a dividend or distribution to the stockholders of the Company in a
form other than Stock (excepting normal cash dividends) that has a material
effect on the Fair Market Value of shares of Stock, appropriate and
proportionate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options, in the ISO Share Issuance
Limit set forth in Section 4.1, in the Section 162(m) Grant Limit set forth in
Section 5.4 and in the exercise price per share of any outstanding Options in
order to prevent dilution or enlargement of Optionees' rights under the Plan.
For purposes of the foregoing, conversion of any convertible securities of the
Company shall not be treated as "effected without receipt of consideration by
the Company." Any fractional share resulting from an adjustment pursuant to this
Section 4.2 shall be rounded down to the nearest whole number, and in no event
may the exercise price of any Option be decreased to an amount less than the par
value, if any, of the stock subject to the Option. Such adjustments shall be
determined by the Board, and its determination shall be final, binding and
conclusive.

      5.    ELIGIBILITY AND OPTION LIMITATIONS.

            5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to
Employees, Consultants and Directors. For purposes of the foregoing sentence,
"Employees," "Consultants"and "Directors" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of an employment or other service relationship
with the Participating Company Group; provided, however, that no Stock subject
to any such Option shall vest, become exercisable or be issued prior to the date
on which such person commences Service.

            5.2 PARTICIPATION. Options are granted solely at the discretion of
the Board. Eligible persons may be granted more than one (1) Option. However,
eligibility in accordance with this Section shall not entitle any person to be
granted an Option, or, having been granted an Option, to be granted an
additional Option.

            5.3 INCENTIVE STOCK OPTION LIMITATIONS.

                  (a) PERSONS ELIGIBLE. An Incentive Stock Option may be granted
only to a person who, on the effective date of grant, is an Employee of the
Company, a Parent



Corporation or a Subsidiary Corporation (each being an "ISO-QUALIFYING
CORPORATION"). Any person who is not an Employee of an ISO-Qualifying
Corporation on the effective date of the grant of an Option to such person may
be granted only a Nonstatutory Stock Option. An Incentive Stock Option granted
to a prospective Employee upon the condition that such person become an Employee
of an ISO-Qualifying Corporation shall be deemed granted effective on the date
such person commences Service with an ISO-Qualifying Corporation, with an
exercise price determined as of such date in accordance with Section 6.1.

                  (b) FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portions
of such options which exceed such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3(b), options designated as Incentive
Stock Options shall be taken into account in the order in which they were
granted, and the Fair Market Value of stock shall be determined as of the time
the option with respect to such stock is granted. If the Code is amended to
provide for a different limitation from that set forth in this Section 5.3(b),
such different limitation shall be deemed incorporated herein effective as of
the date and with respect to such Options as required or permitted by such
amendment to the Code. If an Option is treated as an Incentive Stock Option in
part and as a Nonstatutory Stock Option in part by reason of the limitation set
forth in this Section 5.3(b), the Optionee may designate which portion of such
Option the Optionee is exercising. In the absence of such designation, the
Optionee shall be deemed to have exercised the Incentive Stock Option portion of
the Option first. Separate certificates representing each such portion shall be
issued upon the exercise of the Option.

            5.4 SECTION 162(m) GRANT LIMIT. Subject to adjustment as provided in
Section 4.2, at any such time as the Company is a "publicly held corporation"
within the meaning of Section 162(m) of the Code, no Employee shall be granted
one or more Options within any fiscal year of the Company which in the aggregate
are for the purchase of more than one million two hundred fifty thousand
(1,250,000) shares (the "SECTION 162(m) GRANT LIMIT").

      6.    TERMS AND CONDITIONS OF OPTIONS.

            Options shall be evidenced by Option Agreements specifying the
number of shares of Stock covered thereby, in such form as the Board shall from
time to time establish. No Option or purported Option shall be a valid and
binding obligation of the Company unless evidenced by a fully executed Option
Agreement. Option Agreements may incorporate all or any of the terms of the Plan
by reference and shall comply with and be subject to the following terms and
conditions:

            6.1 EXERCISE PRICE. The exercise price for each Option shall be
established in the discretion of the Board; provided, however, that (a) the
exercise price per share for an Option shall be not less than the Fair Market
Value of a share of Stock on the effective date of grant of the Option and (b)
no Incentive Stock Option granted to a Ten Percent Stockholder shall have an
exercise price per share less than one hundred ten percent (110%) of the Fair
Market Value of a share of Stock on the effective date of grant of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with



an exercise price lower than the minimum exercise price set forth above if such
Option is granted pursuant to an assumption or substitution for another option
in a manner qualifying under the provisions of Section 424(a) of the Code.

            6.2 EXERCISABILITY AND TERM OF OPTIONS. Options shall be exercisable
at such time or times, or upon such event or events, and subject to such terms,
conditions, performance criteria and restrictions as shall be determined by the
Board and set forth in the Option Agreement evidencing such Option; provided,
however, that (a) no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years after the effective date of grant of such Option
and (b) no Incentive Stock Option granted to a Ten Percent Stockholder shall be
exercisable after the expiration of five (5) years after the effective date of
grant of such Option. Subject to the foregoing, unless otherwise specified by
the Board in the grant of an Option, any Option granted hereunder shall
terminate ten (10) years after the effective date of grant of the Option, unless
earlier terminated in accordance with its provisions.

            6.3 PAYMENT OF EXERCISE PRICE.

                  (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check or
cash equivalent, (ii) by tender to the Company, or attestation to the ownership,
of shares of Stock owned by the Optionee having a Fair Market Value not less
than the exercise price, (iii) by delivery of a properly executed notice
together with irrevocable instructions to a broker providing for the assignment
to the Company of the proceeds of a sale or loan with respect to some or all of
the shares being acquired upon the exercise of the Option (including, without
limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System) (a "CASHLESS EXERCISE"), (iv) by such other consideration as may be
approved by the Board from time to time to the extent permitted by applicable
law, or (v) by any combination thereof. The Board may at any time or from time
to time, by approval of or by amendment to the standard forms of Option
Agreement described in Section 7, or by other means, grant Options which do not
permit all of the foregoing forms of consideration to be used in payment of the
exercise price or which otherwise restrict one or more forms of consideration.

                  (b) LIMITATIONS ON FORMS OF CONSIDERATION.

                        (i) TENDER OF STOCK. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company, or attestation to the
ownership, of shares of Stock to the extent such tender or attestation would
constitute a violation of the provisions of any law, regulation or agreement
restricting the redemption of the Company's stock. Unless otherwise provided by
the Board, an Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock unless such shares either have
been owned by the Optionee for more than six (6) months (and not used for
another Option exercise by attestation during such period) or were not acquired,
directly or indirectly, from the Company.

                        (ii) CASHLESS EXERCISE. The Company reserves, at any and
all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise, including with respect to
one or more Optionees specified by the Company notwithstanding that such program
or procedures may be available to other Optionees.



            6.4   EFFECT OF TERMINATION OF SERVICE.

                  (a) OPTION EXERCISABILITY. Subject to earlier termination of
the Option as otherwise provided herein and unless otherwise provided by the
Board in the grant of an Option and set forth in the Option Agreement, an Option
shall be exercisable after an Optionee's termination of Service only during the
applicable time period determined in accordance with this Section 6.4 and
thereafter shall terminate:

                        (i) DISABILITY. If the Optionee's Service terminates
because of the Disability of the Optionee, the Option, to the extent unexercised
and exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee (or the Optionee's guardian or legal representative)
at any time prior to the expiration of twelve (12) months (or such longer period
of time as determined by the Board, in its discretion) after the date on which
the Optionee's Service terminated, but in any event no later than the date of
expiration of the Option's term as set forth in the Option Agreement evidencing
such Option (the "OPTION EXPIRATION DATE").

                        (ii) DEATH. If the Optionee's Service terminates because
of the death of the Optionee, the Option, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee's legal representative or other person who acquired
the right to exercise the Option by reason of the Optionee's death at any time
prior to the expiration of twelve (12) months (or such longer period of time as
determined by the Board, in its discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date. The Optionee's Service shall be deemed to have terminated on
account of death if the Optionee dies within three (3) months (or such longer
period of time as determined by the Board, in its discretion) after the
Optionee's termination of Service.

                        (iii) OTHER TERMINATION OF SERVICE. If the Optionee's
Service terminates for any reason, other than Disability or death, the Option,
to the extent unexercised and exercisable by the Optionee on the date on which
the Optionee's Service terminated, may be exercised by the Optionee at any time
prior to the expiration of three (3) months (or such longer period of time as
determined by the Board, in its discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.

                  (b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, other than termination of Service for Cause, if the exercise of
an Option within the applicable time periods set forth in Section 6.4(a) is
prevented by the provisions of Section 11 below, the Option shall remain
exercisable until thirty (30) days (or such longer period of time as determined
by the Board, in its discretion) after the date the Optionee is notified by the
Company that the Option is exercisable, but in any event no later than the
Option Expiration Date.

                  (c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, other than termination of Service for Cause, if a
sale within the applicable time periods set forth in Section 6.4(a) of shares
acquired upon the exercise of the Option would subject the Optionee to suit
under Section 16(b) of the Exchange Act, the Option shall remain exercisable
until the earliest to occur of (i) the tenth (10th) day following the date on
which a sale of such shares by the Optionee would no longer be subject to such
suit, (ii) the one hundred



and ninetieth (190th) day after the Optionee's termination of Service, or (iii)
the Option Expiration Date.

            6.5 TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
Notwithstanding the foregoing, to the extent permitted by the Board, in its
discretion, and set forth in the Option Agreement evidencing such Option, a
Nonstatutory Stock Option shall be assignable or transferable subject to the
applicable limitations, if any, described in the General Instructions to Form
S-8 Registration Statement under the Securities Act.

      7.    STANDARD FORMS OF OPTION AGREEMENT.

            7.1 OPTION AGREEMENT. Unless otherwise provided by the Board at the
time the Option is granted, an Option shall comply with and be subject to the
terms and conditions set forth in the appropriate form of Option Agreement
approved by the Board concurrently with its adoption of the Plan and as amended
from time to time.

            7.2 AUTHORITY TO VARY TERMS. The Board shall have the authority from
time to time to vary the terms of any standard form of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement are not
inconsistent with the terms of the Plan.

      8.    CHANGE IN CONTROL.

            8.1 DEFINITIONS.

            (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if
any of the following occurs with respect to the Company: (i) the direct or
indirect sale or exchange in a single or series of related transactions by the
stockholders of the Company of more than fifty percent (50%) of the voting stock
of the Company; (ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange, or transfer of all or substantially all of the assets
of the Company; or (iv) a liquidation or dissolution of the Company.

            (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a
series of related Ownership Change Events (collectively, a "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting securities of the Company or, in the case of a Transaction
described in Section 8.1(a)(iii), the corporation or other business entity to
which the assets of the Company were transferred (the "TRANSFEREE"), as the case
may be. For purposes of the preceding sentence, indirect beneficial ownership
shall include, without limitation, an interest resulting from ownership of the
voting securities of one or more corporations or other business entities which
own the Company or the Transferee, as the case may be, either directly or
through one or



more subsidiary corporations or other business entities. The Board shall have
the right to determine whether multiple sales or exchanges of the voting
securities of the Company or multiple Ownership Change Events are related, and
its determination shall be final, binding and conclusive.

            8.2   EFFECT OF CHANGE IN CONTROL ON OPTIONS.

                  (a) ACCELERATED VESTING. Notwithstanding any other provision
of the Plan to the contrary, the Board, in its sole discretion, may provide in
any Option Agreement or, in the event of a Change in Control, may take such
actions as it deems appropriate to provide for the acceleration of the
exercisability and vesting in connection with such Change in Control of any or
all outstanding Options and shares acquired upon the exercise of such Options.

                  (b) ASSUMPTION OR SUBSTITUTION OF OPTIONS. In the event of a
Change in Control, the surviving, continuing, successor, or purchasing
corporation or other business entity or parent thereof, as the case may be (the
"ACQUIROR"), may, without the consent of any Optionee, either assume the
Company's rights and obligations under outstanding Options or substitute for
outstanding Options substantially equivalent options for the Acquiror's stock.
Any Options which are not assumed by the Acquiror in connection with the Change
in Control shall, to the extent not exercised as of the date of the Change in
Control, terminate and cease to be outstanding effective as of the date of the
Change in Control. Notwithstanding the foregoing, if the corporation the stock
of which is subject to the outstanding Options immediately prior to an Ownership
Change Event described in Section 8.1(a)(i) constituting a Change in Control is
the surviving or continuing corporation and immediately after such Ownership
Change Event less than fifty percent (50%) of the total combined voting power of
its voting stock is held by another corporation, the outstanding Options shall
not terminate unless the Board otherwise provides in its discretion. For the
purposes of this Section 8.2(b), an Option shall be considered assumed if, for
every share of Stock subject thereto immediately prior to the Change in Control,
the Optionee has the right, following the Change in Control, to acquire in
accordance with the terms and conditions of the assumed Option the consideration
(whether stock, cash or other securities or property) received in the Change in
Control transaction by holders of shares of Stock for each share held
immediately prior to such transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Stock); provided, however, that if such consideration
received in the Change in Control transaction was not solely common stock of the
Acquiror, the Board may, with the consent of the Acquiror, provide for the
consideration to be acquired to be solely common stock of the Acquiror equal in
Fair Market Value to the per share consideration received by holders of Stock in
the Change in Control transaction.

                  (c) CASH-OUT OF OPTIONS. The Board may, in its sole discretion
and without the consent of any Optionee, determine that, upon the occurrence of
a Change in Control, each or any Option outstanding immediately prior to the
Change in Control shall be canceled in exchange for a payment with respect to
each vested share of Stock subject to such canceled Option in (i) cash, (ii)
stock of the Company or of a corporation or other business entity a party to the
Change in Control, or (iii) other property which, in any such case, shall be in
an amount having a Fair Market Value equal to the Fair Market Value of the
consideration to be paid per share of Stock in the Change in Control over the
exercise price per share under such Option (the "SPREAD"). In the event such
determination is made by the Board, the Spread



(reduced by applicable withholding taxes, if any) shall be paid to Optionees in
respect of their canceled Options as soon as practicable following the date of
the Change in Control.

      9.    TAX WITHHOLDING.

            9.1 TAX WITHHOLDING IN GENERAL. The Company shall have the right to
deduct from any and all payments made under the Plan, or to require the
Optionee, through payroll withholding, cash payment or otherwise, including by
means of a Cashless Exercise of an Option, to make adequate provision for, the
federal, state, local and foreign taxes, if any, required by law to be withheld
by the Participating Company Group with respect to an Option or the shares
acquired pursuant thereto. The Company shall have no obligation to deliver
shares of Stock until the Participating Company Group's tax withholding
obligations have been satisfied by the Optionee.

            9.2 WITHHOLDING IN SHARES. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable to an Optionee upon
the exercise of an Option, or to accept from the Optionee the tender of, a
number of whole shares of Stock having a Fair Market Value, as determined by the
Company, equal to all or any part of the tax withholding obligations of the
Participating Company Group. The Fair Market Value of any shares of Stock
withheld or tendered to satisfy any such tax withholding obligations shall not
exceed the amount determined by the applicable minimum statutory withholding
rates.

      10.   COMPLIANCE WITH SECURITIES LAW.

            The grant of Options and the issuance of shares of Stock upon
exercise of Options shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such securities.
Options may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
no Option may be exercised unless (a) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (b) in the opinion
of legal counsel to the Company, the shares issuable upon exercise of the Option
may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of any
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.

      11.   TERMINATION OR AMENDMENT OF PLAN.

            The Board may terminate or amend the Plan at any time. However,
subject to changes in applicable law, regulations or rules that would permit
otherwise, without the approval of the Company's stockholders, there shall be
(a) no increase in the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of



Section 4.2), (b) no change in the class of persons eligible to receive
Incentive Stock Options, and (c) no other amendment of the Plan that would
require approval of the Company's stockholders under any applicable law,
regulation or rule. No termination or amendment of the Plan shall affect any
then outstanding Option unless expressly provided by the Board. In any event, no
termination or amendment of the Plan may adversely affect any then outstanding
Option without the consent of the Optionee, unless such termination or amendment
is required to enable an Option designated as an Incentive Stock Option to
qualify as an Incentive Stock Option or is necessary to comply with any
applicable law, regulation or rule.

      12.   MISCELLANEOUS PROVISIONS.

            12.1 PROVISION OF INFORMATION. Each Optionee shall be given access
to information concerning the Company equivalent to that information generally
made available to the Company's common stockholders.

            12.2 RIGHTS AS EMPLOYEE OR CONSULTANT. No person, even though
eligible pursuant to Section 5, shall have a right to be selected as a Optionee,
or, having been so selected, to be selected again as a Optionee. Nothing in the
Plan or any Option granted under the Plan shall confer on any Optionee a right
to remain an Employee or Consultant, or interfere with or limit in any way any
right of a Participating Company to terminate the Optionee's Service at any
time. To the extent that an Employee of a Participating Company other than the
Company receives an Option under the Plan, that Option shall in no event be
understood or interpreted to mean that the Company is the Employee's employer or
that the Employee has an employment relationship with the Company.

            12.3 RIGHTS AS A STOCKHOLDER. An Optionee shall have no rights as a
stockholder with respect to any shares covered by an Option until the date of
the issuance of such shares (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such shares are issued, except as provided
in Section 4.2 or another provision of the Plan.

            12.4 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of any Option.

            12.5 BENEFICIARY DESIGNATION. Subject to local laws and procedures,
each Optionee may file with the Company a written designation of a beneficiary
who is to receive any benefit under the Plan to which the Optionee is entitled
in the event of such Optionee's death before he or she receives any or all of
such benefit. Each designation will revoke all prior designations by the same
Optionee, shall be in a form prescribed by the Company, and will be effective
only when filed by the Optionee in writing with the Company during the
Optionee's lifetime. If a married Optionee designates a beneficiary other than
the Optionee's spouse, the effectiveness of such designation may be subject to
the consent of the Optionee's spouse. If a Optionee dies without an effective
designation of a beneficiary who is living at the time of the Optionee's death,
the Company will pay any remaining unpaid benefits to the Optionee's legal
representative.

EX-10.2

                                                                    EXHIBIT 10.2

                         SCICLONE PHARMACEUTICALS, INC.
                    2004 OUTSIDE DIRECTORS STOCK OPTION PLAN

      1.    ESTABLISHMENT, PURPOSE AND TERM OF PLAN.

            1.1 ESTABLISHMENt. The SciClone Pharmaceuticals, Inc. 2004 Outside
Directors Stock Option Plan (the "PLAN") is established effective as of May 26,
2004, the date on which it is approved by the stockholders of the Company (the
"EFFECTIVE DATE").

            1.2 PURPOSE. The purpose of the Plan is to advance the interests of
the Company and its stockholders by providing an incentive to attract, retain
and reward persons performing services as Outside Directors of the Company and
by motivating such persons to contribute to the growth and profitability of the
Company.

            1.3 TERM OF PLAN. The Plan shall continue in effect until terminated
by the Board or the date on which all of the shares of Stock available for
issuance under the Plan have been issued and all restrictions on such shares
under the terms of the Plan and the agreements evidencing Options granted under
the Plan have lapsed.

      2.    DEFINITIONS AND CONSTRUCTION.

            2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:

                  (a) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"BOARD" also means such Committee(s).

                  (b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.

                  (c) "COMMITTEE" means the compensation committee or other
committee of one or members of the Board duly appointed to administer the Plan
and having such powers as shall be specified by the Board. Unless the powers of
the Committee have been specifically limited, the Committee shall have all of
the powers of the Board granted herein, including, without limitation, the power
to amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.

                  (d) "COMPANY" means SciClone Pharmaceuticals, Inc. a Delaware
corporation, or any successor corporation thereto.

                  (e) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.



                  (f) "DISABILITY" means the permanent and total disability of
the Optionee within the meaning of Section 22(e)(3) of the Code.

                  (g) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.

                  (h) "FAIR MARKET VALUE" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its discretion,
or by the Company, in its discretion, if such determination is expressly
allocated to the Company herein, subject to the following:

                        (i) If, on such date, the Stock is listed on a national
or regional securities exchange or market system, the Fair Market Value of a
share of Stock shall be the closing price of a share of Stock (or the closing
bid price of a share of Stock if the Stock is so quoted instead) as quoted on
the Nasdaq National Market, The Nasdaq SmallCap Market or such other national or
regional securities exchange or market system constituting the primary market
for the Stock, as reported in The Wall Street Journal or such other source as
the Company deems reliable. If the relevant date does not fall on a day on which
the Stock has traded on such securities exchange or market system, the date on
which the Fair Market Value shall be established shall be the last day on which
the Stock was so traded prior to the relevant date, or such other appropriate
day as shall be determined by the Board, in its discretion.

                        (ii) If, on such date, the Stock is not listed on a
national or regional securities exchange or market system, the Fair Market Value
of a share of Stock shall be as determined by the Board in good faith without
regard to any restriction other than a restriction which, by its terms, will
never lapse.

                  (i) "NON-EMPLOYEE DIRECTOR" means a Director who (i) is not a
current employee or officer of the Company or any Parent Corporation or
Subsidiary Corporation; (ii) does not receive compensation, either directly or
indirectly, from the Company or any Parent Corporation or Subsidiary Corporation
for services rendered as a consultant or in any capacity other than as a
Director, except for an amount that does not exceed the dollar amount for which
disclosure would be required pursuant to Item 404(a) of Regulation S-K under the
Securities Act ("REGULATION S-K"); (iii) does not possess an interest in any
other transaction for which disclosure would be required pursuant to Item 404(a)
of Regulation S-K; and (iv) is not engaged in a business relationship for which
disclosure would be required pursuant to Item 404(b) of Regulation S-K.

                  (j) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. Each Option shall be a nonstatutory stock option; that is, an option
not intended to qualify as an incentive stock option within the meaning of
Section 422(b) of the Code.

                  (k) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee and any shares acquired upon the exercise
thereof.



                  (l) "OPTIONEE" means a person who has been granted one or more
Options.

                  (m) "OUTSIDE DIRECTOR" means a Director who is not an employee
of the Company or of any Parent Corporation or Subsidiary Corporation.

                  (n) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.

                  (o) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.

                  (p) "SECURITIES ACT" means the Securities Act of 1933, as
amended.

                  (q) "SERVICE" means an Optionee's service with the Company as
a Director. An Optionee's Service shall be deemed to have terminated if the
Optionee ceases to be a Director, even if the Optionee continues to render
service to the Company in a capacity other than as a Director or commences
rendering service to a Parent Corporation or Subsidiary Corporation. An
Optionee's Service shall not be deemed to have terminated if the Optionee takes
any bona fide leave of absence approved by the Company. Unless otherwise
provided by the Board in the grant of an Option and set forth in the Option
Agreement evidencing such Option, an approved leave of absence shall be treated
as Service for purposes of determining vesting under the Option. Subject to the
foregoing, the Company, in its discretion, shall determine whether the
Optionee's Service has terminated and the effective date of such termination.

                  (r) "STOCK" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.

                  (s) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.

            2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.

      3.    ADMINISTRATION.

            3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by
the Board. All questions of interpretation of the Plan or of any Option shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan or such Option. At any time that any
class of equity security of the Company is registered pursuant to Section 12 of
the Exchange Act, the Plan shall be administered in compliance with the
requirements, if any, of Rule 16b-3. For this purpose, the Board may delegate
authority to administer the Plan to a Committee composed solely of two or more
Non-Employee Directors.



            3.2 AUTHORITY OF OFFICERS. Any officer of the Company shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, determination or election which is the responsibility of or which is
allocated to the Company herein, provided the officer has apparent authority
with respect to such matter, right, obligation, determination or election.

            3.3 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or officers or
employees of the Company, members of the Board and any officers or employees of
the Company to whom authority to act for the Board or the Company is delegated
shall be indemnified by the Company against all reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.

      4.    SHARES SUBJECT TO PLAN.

            4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be four hundred sixty five thousand (465,000)
and shall consist of authorized but unissued or reacquired shares of Stock or
any combination thereof. Shares issuable under the Plan shall consist of
authorized but unissued or reacquired shares of Stock or any combination
thereof. If an outstanding Option for any reason expires or is terminated or
canceled without having been exercised in full, the shares of Stock allocable to
the unexercised portion of such Option shall again be available for issuance
under the Plan. Shares of Stock shall not be deemed to have been issued pursuant
to the Plan to the extent such shares are withheld in satisfaction of tax
withholding obligations pursuant to Section 6.5.

            4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. Subject to any
required action by the stockholders of the Company, in the event of any change
in the Stock effected without receipt of consideration by the Company, whether
through merger, consolidation, reorganization, reincorporation,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, split-up, split-off, spin-off, combination of shares, exchange of shares,
or similar change in the capital structure of the Company, or in the event of
payment of a dividend or distribution to the stockholders of the Company in a
form other than Stock (excepting normal cash dividends) that has a material
effect on the Fair Market Value of shares of Stock, appropriate and
proportionate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options and in the exercise price per
share of any outstanding Options in order to prevent dilution or enlargement of
Optionees' rights under the Plan. For purposes of the foregoing, conversion of
any convertible securities of the Company



shall not be treated as "effected without receipt of consideration by the
Company." Any fractional share resulting from an adjustment pursuant to this
Section 4.2 shall be rounded down to the nearest whole number, and in no event
may the exercise price of any Option be decreased to an amount less than the par
value, if any, of the stock subject to the Option. Such adjustments shall be
determined by the Board, and its determination shall be final, binding and
conclusive.

      5.    ELIGIBILITY.

            Options shall be granted only to those persons who, at the time of
grant, are serving as Outside Directors.

      6.    TERMS AND CONDITIONS OF OPTIONS.

            Options shall be evidenced by Option Agreements specifying the
number of shares of Stock covered thereby, in such form as the Board shall from
time to time establish. Option Agreements may incorporate all or any of the
terms of the Plan by reference and shall comply with and be subject to the
following terms and conditions:

            6.1 AUTOMATIC GRANT. Subject to the execution by an Outside Director
of an appropriate Option Agreement, Options shall be granted automatically and
without further action of the Board, as follows:

                  (a) INITIAL OPTION. Each person who first becomes an Outside
Director on or after the Effective Date shall be granted on the date such person
first becomes an Outside Director an Option to purchase fifty thousand (50,000)
shares of Stock (an "INITIAL OPTION").

                  (b) ANNUAL OPTION. Each Outside Director shall be granted on
the date of each annual meeting of the stockholders of the Company which occurs
on or after the Effective Date (an "ANNUAL MEETING") immediately following which
such person remains an Outside Director an Option to purchase thirty thousand
(30,000) shares of Stock (an "ANNUAL OPTION"); provided, however, that an
Outside Director granted an Initial Option within the prior one year period
immediately preceding the date of an Annual Meeting shall be granted an option
to purchase that number of shares subject to an Annual Option multiplied by a
fraction, the numerator of which is the number of full months which have lapsed
since the date of appointment as an Outside Director and the denominator of
which is twelve (12).

                  (c) RIGHT TO DECLINE OPTION. Notwithstanding the foregoing,
any person may elect not to receive an Option by delivering written notice of
such election to the Board no later than the day prior to the date such Option
would otherwise be granted. A person so declining an Option shall receive no
payment or other consideration in lieu of such declined Option. A person who has
declined an Option may revoke such election by delivering written notice of such
revocation to the Board no later than the day prior to the date such Option
would be granted pursuant to Section 6.1(a) or (b), as the case may be.

            6.2 EXERCISE PRICE. The exercise price per share of Stock subject to
an Option shall be the Fair Market Value of a share of Stock on the date of
grant of the Option. Notwithstanding the foregoing, an Option may be granted
with an exercise price lower than the



minimum exercise price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying under the
provisions of Section 424(a) of the Code.

            6.3 EXERCISABILITY AND TERM OF OPTIONS. Except as otherwise provided
in the Plan or in the Option Agreement evidencing an Option and provided that
the Optionee's Service has not terminated prior to the relevant date, each
Option shall vest and become exercisable as follows:

                  (a) INITIAL OPTION. The Initial Option shall vest and become
exercisable with respect to one-third (1/3) of the shares initially subject
thereto on the first anniversary of the date of grant, an additional one third
(1/3) of the shares initially subject thereto shall vest and become exercisable
on the second anniversary of the date of grant, and the remainder shall vest and
become exercisable on the third anniversary of the date of grant.

                  (b) ANNUAL OPTION: The Annual Option shall vest and become
exercisable with respect to one-twelfth (1/12) of the shares initially subject
thereto for each full month of the Optionee's continuous Service from the date
of grant until the Option is fully vested.

                  (c) TERM OF OPTION. Unless earlier terminated in accordance
with the terms of the Plan or the Option Agreement evidencing an Option, each
Option shall terminate and cease to be exercisable on the tenth (10th)
anniversary of the date of grant of the Option.

            6.4   PAYMENT OF EXERCISE PRICE.

                  (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash or by check,
(ii) by tender to the Company, or attestation to the ownership, of shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the exercise price, (iii) by delivery
of a properly executed notice together with irrevocable instructions to a broker
providing for the assignment to the Company of the proceeds of a sale or loan
with respect to some or all of the shares being acquired upon the exercise of
the Option (including, without limitation, through an exercise complying with
the provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), or (iv) by any
combination thereof.

                  (b) LIMITATIONS ON FORMS OF CONSIDERATION.

                        (i) TENDER OF STOCK. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company, or attestation to the
ownership, of shares of Stock to the extent such tender or attestation would
constitute a violation of the provisions of any law, regulation or agreement
restricting the redemption of the Company's stock. Unless otherwise provided by
the Board, an Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock unless such shares either have
been owned by the



Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.

                        (ii) CASHLESS EXERCISE. The Company reserves, at any and
all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.

            6.5 TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value, as determined by the Company, equal to all
or any part of the federal, state, local and foreign taxes, if any, required by
law to be withheld by the Company with respect to such Option or the shares
acquired upon the exercise thereof. Alternatively or in addition, in its
discretion, the Company shall have the right to require the Optionee, by cash
payment or otherwise, including by means of a Cashless Exercise, to make
adequate provision for any such tax withholding obligations of the Company
arising in connection with the Option or the shares acquired upon the exercise
thereof. The Fair Market Value of any shares of Stock withheld or tendered to
satisfy any such tax withholding obligations shall not exceed the amount
determined by the applicable minimum statutory withholding rates. The Company
shall have no obligation to deliver shares of Stock until the Company's tax
withholding obligations have been satisfied by the Optionee.

            6.6 EFFECT OF TERMINATION OF SERVICE.

                  (a) OPTION EXERCISABILITY. Subject to earlier termination of
the Option as otherwise provided herein, an Option shall be exercisable after an
Optionee's termination of Service only during the applicable time period
determined in accordance with this Section 6.6 and thereafter shall terminate:

                        (i) DISABILITY. If the Optionee's Service terminates
because of the Disability of the Optionee, the Option, to the extent unexercised
and exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee (or the Optionee's guardian or legal representative)
at any time prior to the expiration of twelve (12) months after the date on
which the Optionee's Service terminated, but in any event no later than the date
of expiration of the Option's term as set forth in the Option Agreement
evidencing such Option (the "OPTION EXPIRATION DATE").

                        (ii) DEATH. If the Optionee's Service terminates because
of the death of the Optionee, the Option, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee's legal representative or other person who acquired
the right to exercise the Option by reason of the Optionee's death at any time
prior to the expiration of twelve (12) months after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date. The Optionee's Service shall be deemed to have terminated on
account of death if the Optionee dies within three (3) months after the
Optionee's termination of Service.



                        (iii) OTHER TERMINATION OF SERVICE. If the Optionee's
Service terminates for any reason, except Disability or death, the Option, to
the extent unexercised and exercisable by the Optionee on the date on which the
Optionee's Service terminated, may be exercised by the Optionee at any time
prior to the expiration of three (3) months after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.

                  (b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of an Option within the applicable time periods
set forth in Section 6.6(a) is prevented by the provisions of Section 9 below,
the Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date.

                  (c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.6(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.

            6.7 TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
Notwithstanding the foregoing, to the extent permitted by the Board, in its
discretion, and set forth in the Option Agreement evidencing such Option, an
Option shall be assignable or transferable subject to the applicable
limitations, if any, described in the General Instructions to Form S-8
Registration Statement under the Securities Act.

      7. STANDARD FORMS OF OPTION AGREEMENT.

            7.1 OPTION AGREEMENT. Each Option shall comply with and be subject
to the terms and conditions set forth in the form of Option Agreement approved
by the Board concurrently with its adoption of the Plan and as amended from time
to time.

            7.2 AUTHORITY TO VARY TERMS. The Board shall have the authority from
time to time to vary the terms of any standard form of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement are not
inconsistent with the terms of the Plan. Such authority shall include, but not
by way of limitation, the authority to grant Options which are immediately
exercisable subject to the Company's right to repurchase any unvested shares of
Stock acquired by the Optionee on exercise of an Option in the event such
Optionee's Service is terminated for any reason.

      8. EFFECT OF CHANGE IN CONTROL.

            8.1 DEFINITIONS.



                  (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company: (i) the
direct or indirect sale or exchange in a single or series of related
transactions by the stockholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.

                  (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, a "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting securities of the Company or, in the case of a Transaction
described in Section 8.1(a)(iii), the corporation or other business entity to
which the assets of the Company were transferred (the "TRANSFEREE"), as the case
may be. For purposes of the preceding sentence, indirect beneficial ownership
shall include, without limitation, an interest resulting from ownership of the
voting securities of one or more corporations or other business entities which
own the Company or the Transferee, as the case may be, either directly or
through one or more subsidiary corporations or other business entities. The
Board shall have the right to determine whether multiple sales or exchanges of
the voting securities of the Company or multiple Ownership Change Events are
related, and its determination shall be final, binding and conclusive.

            8.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event of a Change
in Control, any unexercisable or unvested portions of outstanding Options and
any shares acquired upon the exercise thereof shall be immediately exercisable
and vested in full as of the date ten (10) days prior to the date of the Change
in Control. The exercise or vesting of any Option and any shares acquired upon
the exercise thereof that was permissible solely by reason of this Section 8.2
shall be conditioned upon the consummation of the Change in Control. In
addition, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "ACQUIROR"), may either
assume the Company's rights and obligations under outstanding Options or
substitute for outstanding Options substantially equivalent options for the
Acquiror's stock. Any Options which are neither assumed or substituted for by
the Acquiror in connection with the Change in Control nor exercised as of the
date of the Change in Control shall terminate and cease to be outstanding
effective as of the date of the Change in Control. Notwithstanding the
foregoing, if the corporation the stock of which is subject to the outstanding
Options immediately prior to an Ownership Change Event described in Section
8.1(a)(i) constituting a Change in Control is the surviving or continuing
corporation and immediately after such Ownership Change Event less than fifty
percent (50%) of the total combined voting power of its voting stock is held by
another corporation, the outstanding Options shall not terminate unless the
Board otherwise provides in its discretion. For the purposes of this Section
8.2, an Option shall be considered assumed if, for every share of Stock subject
thereto immediately prior to the Change in Control, the Optionee has the right,
following the Change in Control, to acquire in accordance with the terms and
conditions of the assumed Option the consideration (whether stock, cash or other
securities or property) received in the Change in Control transaction by holders
of shares of Stock for each share held immediately



prior to such transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Stock); provided, however, that if such consideration
received in the Change in Control transaction was not solely common stock of the
Acquiror, the Board may, with the consent of the Acquiror, provide for the
consideration to be acquired to be solely common stock of the Acquiror equal in
Fair Market Value to the per share consideration received by holders of Stock in
the Change in Control transaction.

      9.    COMPLIANCE WITH SECURITIES LAW.

            The grant of Options and the issuance of shares of Stock upon
exercise of Options shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such securities.
Options may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. The inability
of the Company to obtain from any regulatory body having jurisdiction the
authority, if any, deemed by the Company's legal counsel to be necessary to the
lawful issuance and sale of any shares hereunder shall relieve the Company of
any liability in respect of the failure to issue or sell such shares as to which
such requisite authority shall not have been obtained. As a condition to the
exercise of any Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.

      10.   TERMINATION OR AMENDMENT OF PLAN.

            The Board may terminate or amend the Plan at any time. However,
without the approval of the Company's stockholders, there shall be (a) no
increase in the maximum aggregate number of shares of Stock that may be issued
under the Plan (except by operation of the provisions of Section 4.2), (b) no
material change in the class of persons eligible to receive Options, and (c) no
material change in the amount, timing or exercise price formula of automatic
grants of Options pursuant to Section 6.1 above. No termination or amendment of
the Plan shall affect any then outstanding Option unless expressly provided by
the Board. In any event, no termination or amendment of the Plan may adversely
affect any then outstanding Option without the consent of the Optionee.

      11.   MISCELLANEOUS PROVISIONS.

            11.1 PROVISION OF INFORMATION. Each Optionee shall be given access
to information concerning the Company equivalent to that information generally
made available to the Company's common stockholders.

            11.2 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of any Option.

            11.3 BENEFICIARY DESIGNATION. Each Optionee may file with the
Company a written designation of a beneficiary who is to receive any benefit
under the Plan to which the Optionee is entitled in the event of such Optionee's
death before he or she receives any or all of



such benefit. Each designation will revoke all prior designations by the same
Optionee, shall be in a form prescribed by the Company, and will be effective
only when filed by the Optionee in writing with the Company during the
Optionee's lifetime. If a married Optionee designates a beneficiary other than
the Optionee's spouse, the effectiveness of such designation shall be subject to
the consent of the Optionee's spouse.

            11.4 RIGHTS AS A STOCKHOLDER. An Optionee shall have no rights as a
stockholder with respect to any shares covered by an Option until the date of
the issuance of a certificate for such shares (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company). No adjustment shall be made for dividends, distributions or other
rights for which the record date is prior to the date such certificate is
issued, except as provided in Section 4.2 or another provision of the Plan.

EX-10.3

                                  EXHIBIT 10.3

                                 AMENDMENT NO. 2

                                       TO

 THE EXPANDED AND AMENDED THYMOSIN ALPHA 1 LICENSE, DISTRIBUTORSHIP AND
                                SUPPLY AGREEMENT
        SIGNED BY AND BETWEEN SCICLONE PHARMACEUTICALS INTERNATIONAL LTD
                                       AND
         SIGMA-TAU INDUSTRIE FARMACEUTICHE RIUNITE SPA ON MARCH 3, 2000
       AS AMENDED BY THE PARTIES WITH AMENDMENT NO. 1 ON DECEMBER 19, 2001
                          (HEREINAFTER "THE AGREEMENT")

SCICLONE PHARMACEUTICALS INTERNATIONAL LTD. ("SPIL"), a Cayman Islands business
entity which is a wholly-owned subsidiary of SciClone Pharmaceuticals, Inc.
("SCLN"), a Delaware corporation;

                                       and

SIGMA-TAU INDUSTRIE FARMACEUTICHE RIUNITE S.P.A. ("Sigma-Tau"), an Italian
corporation having offices at viale Shakespeare 47, 00144 Rome, Italy.

SPIL AND SIGMA-TAU HEREBY AGREE TO AMEND ARTICLE 5 (DEVELOPMENT AND CLINICAL
TRIALS), OF THE AGREEMENT (IN ORDER TO ADD A NEW SECTION 5.8) AS FOLLOWS:

5.8 Licensed Product, Pegaysy(R) and Copegus(R) Clinical Trials. Subject to but
without change to other provisions of Article 5, Sigma-Tau and SPIL agree to
conduct a 550 patient hepatitis C trial (the "Trial") under the following terms:

(a) Sigma-Tau and SPIL agree, upon signature of this Amendment, to form a
steering committee (the "Steering Committee") consisting of at least four
appropriate and mutually acceptable individuals, two from Sigma-Tau and two from
SPIL. The role of the Steering Committee is to oversee the conduct and progress
of the Trial with the intention to move the Trial forward as fast as appropriate
and, when necessary, to make recommendations to both SPIL and Sigma-Tau
management for changes or improvements. The Steering Committee will convene
formally a minimum of four times at regularly scheduled telephonic or
face-to-face meetings each calendar quarter (face-to-face meetings will take
place at least twice each calendar year that the Trial is in process) to discuss
the conduct and progress of the Trial. Minutes of the meetings will be sent to
the appropriate levels of both Sigma-Tau and SPIL management.



(b) Sigma-Tau's Obligations

Subject to: (1) SPIL providing to Sigma-Tau the Licensed Product and also
providing the products Pegaysy(R) and Copegus(R) manufactured by F. Hoffmann -
La Roche Ltd. of Basel, Switzerland ("Roche"); (2) the parties' mutual agreement
on the design and objectives of the clinical program and the clinical protocol
for the Trial; (3) regulatory authorization, if needed, to commence the Trial;
and (4) other necessary authorizations and procedures customary and normal to
the conduct of a clinical study comparable to the Trial in accordance with
[****], Sigma-Tau shall use its reasonable best efforts to conduct a
comprehensive minimum enrollment 550 patient phase 3 clinical Trial in the
Territory and in the additional countries of Poland, Hungary, the Czech Republic
and other countries to be approved in writing by SPIL from time to time, which
is designed, implemented and monitored according to [****] involving the
Licensed Product in combination with the products Pegaysy(R) and Copegus(R) in
the treatment of hepatitis C patients that have failed to respond to prior
therapy (non-responders). Subject to the foregoing conditions, unless otherwise
agreed by the parties in writing, Sigma-Tau agrees to the following development
obligations with respect to the Trial:

                        (i) to conduct the Trial as a multi-country,
multi-center study; the number of target sites, Principal Investigator, other
investigators, will be mutually agreed by the parties;

                        (ii) to enroll the first patient in the Trial as soon as
practically possible during the year 2004;

                        (iii) to use its reasonable best efforts to complete the
enrollment of at least 550 patients in the Trial by [****];

                        (iv) to fully and in a timely manner fund the Trial,
subject to SPIL making the payments and supplying the products as provided for
in (c) below; and

                        (v) Sigma-Tau and its Affiliates shall keep SCLN
informed of the progress of the Trial and shall provide SCLN with quarterly
summary reports of the results of the Trial. Sigma-Tau and its Affiliates shall
give SCLN access to the clinical reports and patient histories concerning the
Trial. Sigma-Tau will provide to SCLN and to SPIL, for regulatory and marketing
purposes and with the intention of assisting SCLN and SPIL in the submission of
such regulatory filings as SCLN and SPIL deem appropriate, the data resulting
from the Trial when and as it is available.

(c) SPIL'S Obligations

In furtherance of the Trial:

                        (i) SPIL shall supply free of charge to Sigma-Tau the
Licensed Product, placebo and the Roche products Pegaysy(R) and Copegus(R) in
the amounts needed for the Trial;

*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.



                        (ii) SPIL shall make payments to Sigma-Tau up to a total
of US $2,500,000 (U.S. Dollars two million five hundred thousand) to assist in
paying for incurred or anticipated costs and expenses associated with the Trial,
as follows:

                              (1) an initial payment equal to [****] upon
[****];

                              (2) a payment equal to [****] upon [****];

                              (3) a payment of [****] per each patient, who is
enrolled and injected with active drug substance, up to a cumulative total of
[****], paid [****]; and

                              (4) a milestone payment equal to [****] upon
[****].

(d) SCLN and Roche have entered into that certain Material Transfer Agreement
attached hereto as Annex I (the "Roche MTA"). In concluding the Trial and acting
as the Sponsor as defined in the Roche MTA, Sigma-Tau hereby agrees to perform
the Trial in accordance with (i) the Protocol (which Protocol shall be approved
by SCLN, SPIL, Sigma-Tau and Roche), and (ii) the terms of the Roche MTA.
Further, Sigma-Tau agrees to be bound by the same confidentiality and non-use
terms applicable to SCLN under the Roche MTA.

Except only as set forth above, all of the provisions of the Agreement shall
remain unchanged and in full force and effect.

*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.



SIGNATURE PAGE

IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AMENDMENT AGREEMENT TO
BE DULY EXECUTED EFFECTIVE AS OF THE DATE LAST WRITTEN BELOW.

SCICLONE Pharmaceuticals                     SIGMA-TAU Industrie
International Ltd.                           Farmaceutiche Riunite SpA

__________________________________           __________________________________
By:                                          By:
Title:                                       Title:
Date:                                        Date:

EX-10.4

                                  EXHIBIT 10.4

                                 AMENDMENT NO. 3

                                       TO

 THE EXPANDED AND AMENDED THYMOSIN ALPHA 1 LICENSE, DISTRIBUTORSHIP AND
                                SUPPLY AGREEMENT
        SIGNED BY AND BETWEEN SCICLONE PHARMACEUTICALS INTERNATIONAL LTD
                                       AND
         SIGMA-TAU INDUSTRIE FARMACEUTICHE RIUNITE SPA ON MARCH 3, 2000
       AS AMENDED BY THE PARTIES WITH AMENDMENT NO. 1 ON DECEMBER 19, 2001
            AND FURTHER AMENDED WITH AMENDMENT NO. 2 ON MAY 20, 2004
                          (HEREINAFTER "THE AGREEMENT")

SCICLONE PHARMACEUTICALS INTERNATIONAL LTD. ("SPIL"), a Cayman Islands business
entity which is a wholly-owned subsidiary of SciClone Pharmaceuticals, Inc.
("SCLN"), a Delaware corporation;

                                       and

SIGMA-TAU INDUSTRIE FARMACEUTICHE RIUNITE S.P.A. ("Sigma-Tau"), an Italian
corporation having offices at viale Shakespeare 47, 00144 Rome, Italy.

SPIL AND SIGMA-TAU HEREBY AGREE TO AMEND ARTICLE 5 (DEVELOPMENT AND CLINICAL
TRIALS), OF THE AGREEMENT IN ORDER TO ADD AN ADDITIONAL OBLIGATION "(5)" TO
SECTION 5.8, C, II AS FOLLOWS:

(c) SPIL'S Obligations

In furtherance of the Trial:

                              (i) SPIL shall supply free of charge to Sigma-Tau
the Licensed Product, placebo and the Roche products Pegaysy(R) and Copegus(R)
in the amounts needed for the Trial;

                              (ii) SPIL shall make payments to Sigma-Tau up to a
total of US $2,500,000 (U.S. Dollars two million five hundred thousand) to
assist in paying for incurred or anticipated costs and expenses associated with
the Trial, as follows:



                                    (1) an initial payment equal to [****] upon
[****];

                                    (2) a payment equal to [****] upon [****];

                                    (3) a payment of [****] per each patient,
who is enrolled and injected with active drug substance, up to a cumulative
total of [****], paid [****]; and

                                    (4) a milestone payment equal to [****] upon
[****].

                                    (5) a milestone payment equal to U.S.
$1,500,000 (U.S. Dollars one million five hundred thousand) upon completion of
the final study report.

Except only as set forth above, all of the provisions of the Agreement shall
remain unchanged and in full force and effect.

SIGNATURES

IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AMENDMENT AGREEMENT TO
BE DULY EXECUTED EFFECTIVE AS OF THE DATE LAST WRITTEN BELOW.

SCICLONE Pharmaceuticals                       SIGMA-TAU Industrie
International Ltd.                             Farmaceutiche Riunite SpA


____________________________                   _________________________________
By:                                            By:
Title:                                         Title:
Date:                                          Date:

*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.

EX-31.1

                                                                    EXHIBIT 31.1

                                  CERTIFICATION

I, Alfred R. Rudolph, certify that:

      1.    I have reviewed this Form 10-Q of SciClone Pharmaceuticals, Inc.
            (the registrant);

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer(s) and I are responsible
            for establishing and maintaining disclosure controls and procedures
            (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

            (a)   Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            (b)   Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            (c)   Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

      5.    The registrant's other certifying officer(s) and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

            (a)   All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            (b)   Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date:  August 6, 2004                           /s/ Alfred R. Rudolph
                                         ---------------------------------------
                                                   Alfred R. Rudolph
                                           Member of the Office of the President

EX-31.2

                                                                    EXHIBIT 31.2

                                  CERTIFICATION

I, Richard A. Waldron, certify that:

      1.    I have reviewed this Form 10-Q of SciClone Pharmaceuticals, Inc.
            (the registrant);

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer(s) and I are responsible
            for establishing and maintaining disclosure controls and procedures
            (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

            (a)   Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            (b)   Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            (c)   Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

      5.    The registrant's other certifying officer(s) and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

            (a)   All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            (b)   Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date:  August 6, 2004                        /s/ Richard A. Waldron
                                     -------------------------------------------
                                             Richard A. Waldron
                                        Chief Financial Officer and Member of
                                              the Office of the President
                                      (Principal Financial & Accounting Officer)

EX-32.1

                                                                    EXHIBIT 32.1

             CERTIFICATION OF MEMBER OF THE OFFICE OF THE PRESIDENT

I, Alfred R. Rudolph, Member of the Office of the President of SciClone
Pharmaceuticals, Inc. (the "Registrant"), do hereby certify in accordance with
18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, based on my knowledge:

      (1) the Quarterly Report on Form 10-Q of the Registrant, to which this
      certification is attached as an exhibit (the "Report"), fully complies
      with the requirements of section 13(a) of the Securities Exchange Act of
      1934 (15 U.S.C. 78m); and

      (2) the information contained in the Report fairly presents, in all
      material respects, the financial condition and results of operations of
      the Registrant.

Date:  August 6, 2004                            /s/ Alfred R. Rudolph
                                        ---------------------------------------
                                                   Alfred R. Rudolph
                                         Member of the Office of the President

A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to SciClone Pharmaceuticals, Inc. and
will be retained by SciClone Pharmaceuticals, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.

EX-32.2

                                                                    EXHIBIT 32.2

                  CERTIFICATION OF CHIEF FINANCIAL OFFICER AND
                      MEMBER OF THE OFFICE OF THE PRESIDENT

I, Richard A. Waldron, Chief Financial Officer and Member of the Office of the
President of SciClone Pharmaceuticals, Inc. (the "Registrant"), do hereby
certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

      (1)   the Quarterly Report on Form 10-Q of the Registrant, to which this
            certification is attached as an exhibit (the "Report"), fully
            complies with the requirements of Section 13(a) of the Securities
            Exchange Act of 1934 (15 U.S.C. 78m); and

      (2)   the information contained in the Report fairly presents, in all
            material respects, the financial condition and results of operations
            of the Registrant.

Date:  August 6, 2004                           /s/ Richard A. Waldron
                                         --------------------------------------
                                                  Richard A. Waldron
                                               Chief Financial Officer and
                                         Member of the Office of the President

A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to SciClone Pharmaceuticals, Inc. and
will be retained by SciClone Pharmaceuticals, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.